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A balanced portfolio invests in global equities and bonds. The following valuation data is provided: holding asset class valuation as of end of month 1

A balanced portfolio invests in global equities and bonds. The following valuation data is provided:

holding

asset class

valuation as of end of month 1

valuation as of end of month 2

A

Equity

1000

1280

B

Equity

2000

1930

C

Bonds

1500

1520

D

Bonds

1800

1840

Cash

Cash

300

145

Note that the increase in valuation of A is due to 1) market performance and 2) a purchase with a transaction value of 200 already including transaction fees.

The cash balance at the end of month 2 is the result of the cash balance at the beginning of the month, a cash inflow of 50 (new subscriptions), a management fee of 5, the additional purchase of A (see above) and interest income.

Assume that all transactions occur at the end of the month, i.e., shortly before the end of month 2. The portfolio is benchmarked against a 30/70 (equity/bonds) benchmark with equities earning a return

of 50 bps and bonds a return of 1.6%.

a) Determine the total portfolio valuations at t=1 and t=2.

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