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3. An aggressive equity investor with a momentum bias has an initial cash balance of $3,000,000 to invest in two asset classes: stocks and bonds.

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3. An aggressive equity investor with a momentum bias has an initial cash balance of $3,000,000 to invest in two asset classes: stocks and bonds. She is willing to accept a beta up to 1.3 in the stock holdings and the duration of the bond holdings to be 3.5 years. She wants to ensure that her portfolio value doesn't drop below $1,000,000 but is willing to be more aggressive in stock (up to one point two times as aggressive) when the portfolio is above her minimum portfolio value level. a. What portfolio rebalancing strategy does this imply? b. What would be the initial portfolio allocation under this strategy? Show your calculations. c. What would be the rebalanced asset allocation at the end of year 1 assuming equities lost 5% and interest rates rose 50 basis points over the preceding year? Show your calculations and round to the nearest dollar. d. Under what market conditions (if any) would this strategy work best? e. What are the advantages and disadvantages of such a rebalancing strategy? 4. You have a client with 500 total charar ENNA 3. An aggressive equity investor with a momentum bias has an initial cash balance of $3,000,000 to invest in two asset classes: stocks and bonds. She is willing to accept a beta up to 1.3 in the stock holdings and the duration of the bond holdings to be 3.5 years. She wants to ensure that her portfolio value doesn't drop below $1,000,000 but is willing to be more aggressive in stock (up to one point two times as aggressive) when the portfolio is above her minimum portfolio value level. a. What portfolio rebalancing strategy does this imply? b. What would be the initial portfolio allocation under this strategy? Show your calculations. c. What would be the rebalanced asset allocation at the end of year 1 assuming equities lost 5% and interest rates rose 50 basis points over the preceding year? Show your calculations and round to the nearest dollar. d. Under what market conditions (if any) would this strategy work best? e. What are the advantages and disadvantages of such a rebalancing strategy? 4. You have a client with 500 total charar ENNA

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