This document provides instructions for an assignment requiring students to answer questions about three investment reports: Voya Investment Management's 2017 long-term capital market assumptions report, AQR's "Alternative Thinking" capital market assumptions report, and Goldman Sachs' 2017 investment outlook report. Students are instructed to read the reports and use the provided page references to answer 17 multiple choice questions, with each question worth 5.88 points. There is also a bonus question worth 5 points.

1. FIN435_535Market View Paper: Assignment 2Spring 2017
FIN435_535
Market View Paper: Assignment 2
Due Date: Tuesday, March 28, 1:10 p.m.
Name: ___________________________
Instructions: Use the reports provided and referenced below to
answer the questions posed from each report. Page references
are given to guide your work. Type your answers in the table
space provided. There are a total of 17 questions. Thus, each
correct answer is worth 5.88 points so that the total assignment
is worth 100 points. There is also a 5 point bonus question
embedded below.
Voya Investment Management, 2017 Long-Term Capital Market
Assumptions.
Questions
Answers
1. State Voya’s expectation with respect to the U.S. labor force
participation rate. State the primary driver of this expectation,
in Voya’s opinion. (Page 6)
2. State Voya’s expectation with respect to productivity growth.
(Page 6)
3. State and describe the methodology that Voya uses to
generate long-run equilibrium return forecasts. (Page 8)
4. State Voya’s base case economic growth rate forecast and
name the 2 main factors that are driving this forecast. (Page 9)

2. Base case growth rate forecast:
Factor 1:
Factor 2:
5. State Voya’s “alternative” growth rate forecast. (Page 9)
If, as Voya assumes, the base case forecast has a 70%
probability and the alternative case has a 30% probability,
calculate the weighted average forecast growth rate. Show your
work. (Page 9)
Alternative growth rate forecast:
Weighted average growth rate forecast:
AQR: Alternative Thinking: Capital Market Assumptions for
Major Asset Classes
Questions
Answers
1. State what a U.S. 60/40 portfolio was expected to return, on
average, during the 1900s, according to AQR. State what the
expected return has been on the same portfolio “in recent
years.” (Page 1)
During 1900s:
During “recent years”:
2. AQR presents expected returns in terms of real annual

3. compound rates of return over a horizon of 5 – 10 years. State
what AQR considers to be the two most important inputs to
their forecast. (Page 1)
Input 1:
Input 2:
3. For equity markets, state the 2 different models that AQR
uses to estimate expected returns. Define the terms used in the
equations. (Pages 2 and 3, Exhibit 3)
Model 1:
Model 2:
4. What is AQR’s assumed growth rate in EPS for all countries,
except for emerging markets? For emerging markets? (Page 3)
All countries except for EM:
Emerging Markets (EM):

4. 5. State the equation AQR uses to forecast real returns for
government bonds. Define the terms used in the expected return
equation.
Describe what AQR means by “rolldown gains” (also called
“rolldown yield”) for bonds. (Page 4)
6. Give the 3 reasons that AQR uses to justify investing in
German and Japanese bonds even though they have negative
yields. (Page 5)
Reason 1:
Reason 2:
Reason 3:
7. The rest of the AQR report discusses other assets (e.g., credit
and commodities) and Smart Beta and Style Premia. At the end,
what are AQR’s 3 main takeaways from this analysis regarding
timing, expectations for asset class returns, and diversification.
(Page 8)
Timing:
Expectations for asset class returns:

5. Diversification:
Goldman Sachs: 2017 Investment Outlook
Questions
Answers
1. Although GS does not state its numerical forecasts for asset
class returns in this report, it does expect low returns from
traditional “exposures”. State the 3 reasons Goldman gives to
justify this claim. (Pages 3 and 8 - 23)
Reason 1:
Reason 2:
Reason 3:
2. State and briefly describe what Goldman views as the 4
emerging transitions for 2017 that distinguishes its view from
that of 2016. Try to summarize in 1 or 2 sentences these
transitions.
Transition 1:
Transition 2:
Transition 3:

6. Transition 4:
3. State the 3 reasons Goldman gives as to why it would be
premature, for most investors, to “de-risk” at this point in time.
(Page 5)
Reason 1:
Reason 2:
Reason 3:
4. The term “Secular Stagnation” has been used by a prominent
economist to describe the state of the U.S. economy. What is
Goldman’s view? Does Goldman think we are stuck in secular
stagnation? State why or why not. (Page 6)
5. Given that Goldman sees low expected returns on traditional
assets, state at least 3 areas where Goldman does see
opportunities. (Page 7)
Goldman sees opportunities in the following areas:
Area 1:
Area 2:
Area 3:

7. Bonus: For 5 points extra credit, what is the 4th area of
opportunity to improve expected returns, in Goldman’s view?
6. The rest of the Goldman report elaborates on the 4 emerging
transitions identified earlier and the 12 signposts that Goldman
is watching in 2017. Read through this section and let it help
inform you with respect to our next assignment, Market View
Paper 3, in which you will be asked to develop your own
recommendations as to how to re-balance the Wetherbe Fund.
No response is needed here.
1
FIN435_535
Market View Paper: Assignment 2
Spring 2017
1
FIN435_535
Market View Paper: Assignment 2
Due Date: Tuesday, March 28, 1:10 p.m.
Name: ___________________________

8. Instructions:
Use the reports provided and referenced below to answer the
questions posed from
each report. Page references are given to guide your work. Type
your answers in the table space
provided.
There are a total of 17 questions. Thus, each correct answer is
worth
5.88 points so that
the total assignment is worth 100 points.
There is also a 5 point bonus question embedded below.
Voya Investment Management, 2017 Long
-
Term Capital Market Assumptions.
Questions
Answers
1.
State Voya’s expectation with respect to
the
U.S. labor force participation rate.
State the primary driver of this
expectation, in Voya’s opinion. (Page 6)
2.
State Voya’s expectation with respect to

9. productivity growth. (Page 6)
3.
State and describe the methodology that
Voya uses to generate
long
-
run
equilibrium return forecasts. (Page 8)
4.
State Voya’s base case economic growth
rate forecast and name the 2 main factors
that are driving this forecast. (Page 9)
Bas
e
case growth rate forecast:
Factor 1:
Factor 2:
5.

10. State Voya’s “alterna
tive” growth rate
forecast. (Page 9)
If
, as Voya assumes,
the base case forecast
has a 70% probability and the alternative case
has a 30% probability, calculate the weighted
average forecast growth rate.
Show your
work.
(Page 9)
Alternative
growth rate forecast:
Weighted average growth rate forecast:
FIN435_535 Market View Paper: Assignment 2 Spring 2017
1
FIN435_535
Market View Paper: Assignment 2
Due Date: Tuesday, March 28, 1:10 p.m.

11. Name: ___________________________
Instructions: Use the reports provided and referenced below to
answer the questions posed from
each report. Page references are given to guide your work. Type
your answers in the table space
provided. There are a total of 17 questions. Thus, each correct
answer is worth 5.88 points so that
the total assignment is worth 100 points. There is also a 5 point
bonus question embedded below.
Voya Investment Management, 2017 Long-Term Capital Market
Assumptions.
Questions Answers
1. State Voya’s expectation with respect to
the U.S. labor force participation rate.
State the primary driver of this
expectation, in Voya’s opinion. (Page 6)
2. State Voya’s expectation with respect to
productivity growth. (Page 6)
3. State and describe the methodology that
Voya uses to generate long-run
equilibrium return forecasts. (Page 8)
4. State Voya’s base case economic growth
rate forecast and name the 2 main factors
that are driving this forecast. (Page 9)
Base case growth rate forecast:
Factor 1:

12. Factor 2:
5. State Voya’s “alternative” growth rate
forecast. (Page 9)
If, as Voya assumes, the base case forecast
has a 70% probability and the alternative case
has a 30% probability, calculate the weighted
average forecast growth rate. Show your
work. (Page 9)
Alternative growth rate forecast:
Weighted average growth rate forecast:
I N V E S T M E N T M A N A G E M E N T
Not FDIC Insured | May Lose Value | No Bank Guarantee
2017 Long-Term Capital Market Assumptions
Research Report | February 2017
By
The Multi-Asset Strategies and
Solution

13. s Team
Paul Zemsky, CFA
Chief Investment Officer
Barbara Reinhard, CFA
Head of Asset Allocation
Elias Belessakos, PhD
Senior Quantitative Analyst
Timothy Kearney, PhD
Asset Allocation Strategist
Jonathan Kaczka, CFA
Asset Allocation Analyst
Pavel Dekhman, CFA
Research Analyst
2017 Long-Term Capital Market Assumptions2
Table of Contents

14. Foreword 3
Executive Summary 4
Forecast Environment 5
Assumptions for
the Glide Path 8
How Returns Are Forecast 9
Return Forecast Summary 10
Return Table 11
Correlation Matrix 13
Covariance and Correlation
Matrices Methodology 14
Appendix A:
Low Growth but Does It
Have to Last Forever? 17

15. Appendix B:
Time Dependency of
Asset Returns and Its
Impact on Risk Estimation 19
Multi-Asset Strategies
and