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CFA Level I · CFA Level I Exam · Basics of Portfolio Planning and Construction

In an investment policy statement, the section that most likely describes the client's willingness and ability to bear losses is the:

The risk objectives section of the IPS describes the client's willingness and ability to bear losses. It captures risk tolerance and risk capacity. The return objective addresses needed returns, and liquidity addresses expected cash outflows, so neither covers loss-bearing willingness and ability.

  1. Areturn objective
  2. Brisk objectivesCorrect
  3. Cliquidity requirement

Explanation

Risk objectives state both risk tolerance (willingness) and risk capacity (ability) to take risk. The return objective states the desired and required return, and the liquidity requirement covers cash needs.

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