ACTIVITY: RE-BALANCING A CLIENT PORTFOLIO #11

Twelve months ago, you established an investment portfolio for your clients Paul and Esther. At the review next week, you are going to raise the issue again about the importance of maintaining their asset allocation so it is consistent with their risk profile and the investment strategy they both agreed on when the portfolio was first set up.

The original investment portfolio in the amount of $800,000 was split 55% in an International Bond Fund and 45% in an Asian Equity Fund, in line with their target asset allocation.

Today you are reviewing Paul and Esther's investments, and the performance of both funds.

TheInternational Bond Fund has returned 8% and theAsian Equity Fund has returned anegative7% in the previous 12 months.

You want to re-balance Paul and Esther's portfolio back to their target asset allocation of 12 months agoin line with Strategic Asset Allocation principles.

What is the value of their portfolio taking into account the investment returns for the 12 months period? Show the amount in theInternational Bond Fund and theAsian Equity Fund.

Original Investment

Current Value of Investment after 12 months

International Bond Fund

$Answer

$Answer

Asian Equity Fund

$Answer

$Answer

Total

$Answer

$Answer

Assuming Paul and Esther are comfortable re-balancing their portfolio and wish to proceed.

Question 1: How much should be in theInternational Bond Fund?

$Answer

Question 2: How much should be in theAsian Equity Fund?

$Answer

Question 3:Which investment will be purchased?Asian Equity Fund OR

International BondFund

and how much?$Answer

Question 4:Which investment will be sold?Asian Equity Fund OR

International BondFund

and how much?$Answer