6-D. Discuss, based only on the information provided, one benefit and one shortcoming of Greer’s
consideration of a Monte Carlo simulation approach.
Page 38 Level III
Answer Question 6-E on This Page
Determine the most
likely effect (decrease,
no change, increase)
on the Mattisons’
Justify your response.
longevity risk of
accepting the
DC conversion offer.
(circle one)
decrease
no change
increase
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Page 40 Level III
QUESTION 7 HAS THREE PARTS (A, B, C) FOR A TOTAL OF 17 MINUTES.
Lourdes Gonzalez, 48 years old, is a successful entrepreneur who owns a chocolate company
worth USD 150,000,000. She owns 100% of its equity, representing the majority of her net
worth. Gonzalez is exploring a sale of the company.
Acquisitions in Gonzalez’s industry are typically priced at close to the same multiple of earnings.
She is convinced that her company, despite having similar characteristics to the rest of the
industry, is worth at least a 25% premium to that valuation multiple. Gonzalez searches for
expert opinions that would support her opinion of the company’s valuation.
A. Identify the cognitive behavioral bias most likely exhibited by Gonzalez. Justify your
response.
3 minutes (Answer 7-A on page 42)
One month later, Gonzalez contacts an investment banker. She wants to diversify a significant
portion of her equity in the company and generate liquidity.
Even though she has a capable senior management team, Gonzalez believes that she can still add
substantial value to the business for several years. As a result, she wants to achieve the
following objectives in the near term:
• Keep her current management responsibilities
• Retain some upside exposure to the value of the business
• Surrender majority ownership of the company
• Avoid scrutiny from the broad investment community
Gonzalez asks the investment banker for a strategy that will achieve all of her objectives. The
investment banker presents the following four potential monetization strategies:
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