CFA Level I · CFA Level I Exam · Basics of Portfolio Planning and Construction
In an investment policy statement, a client's need to hold a portion of the portfolio in assets that can be converted to cash quickly at a price close to fair value is most likely an example of a:
This is a liquidity constraint. Liquidity describes the ability to convert assets into cash quickly at a price near fair value to meet spending needs or emergencies. Time horizon concerns the length of the investment period, and tax constraints concern how taxes reduce returns.
- Aliquidity constraintCorrect
- Btime horizon constraint
- Ctax constraint
Explanation
Liquidity constraints concern the need to turn assets into cash at low cost and close to fair value, for example to meet expected withdrawals or emergencies. Time horizon relates to the length of the investment period, and tax constraints relate to the effect of taxes on returns.
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