Quote:
Originally Posted by mnm4156
i understand that but can't you also look at it both ways? its measuring how risky the asset portfolio is because its calculating the mean tax contribution that is needed to offset the level of risk of the portfolio. i feel like thats why the Q refers to the metrics as risk/return metrics and not risk and return metrics

There is a difference between the colloquial use of "risk" versus the actuarial use of "risk". Colloquially, the mean at least partially measures risk in that over a sufficient amount of time, a portfolio of higher mean return will outperform a portfolio of lower mean return. However, my understanding of actuarial risk is restricted to the downside risk of receiving less returns than average and the risk of needing to increase taxes in the future. It can also refer to the risk of overtaxing the population, but lowering taxes in the future will not be met with as much aversion. The mean does not measure the actuarial interpretation of risk.
I would like to point out that as the task is written, "risk/return metric" may be interpreted as either 1) an actuarial term defined as a single metric that changes as risk or return changes such as that described by the original post in this thread, or 2) as "risk or return" metric due to "/" being synonymous with "or" in English. Unless I missed something in the Final Assessment wording, I do not believe the SOA can hold it against us if we interpret this problem as one of these two cases.