ACTIVITY: RE-BALANCING A CLIENT PORTFOLIO #12

Twelve months ago, you established an investment portfolio for your clients Michael and Rita. 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 80% in an Australian Capital Market Fund and 20% in an Emerging Market Bond Fund, in line with their target asset allocation.

Today you are reviewing Michael and Rita's investments, and the performance of both funds.

TheAustralian Capital Market Fund has returned 12% and theEmerging Market Bond Fund hasreturned 9.0% in the previous 12 months.

You want to re-balance Michael and Rita'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 theAustralian Capital Market Fund and theEmerging Market Bond Fund.

What is the original investment and Current Value of Investment after 12 months for:

• Australian Capital Market Fund:
• Emerging Market Bond Fund

Assuming Michael and Rita are comfortable re-balancing their portfolio and wish to proceed.

Question 1: How much should be in theAustralian Capital Market Fund?

Question 2: How much should be in theEmerging Market Bond Fund?

Question 3: Which investment will be purchased?

A) Emerging Market Bond Fund

B) Australian Capital Market Fund

and how much $

Question 4:Which investment will be sold?

A) Emerging Market Bond Fund

B) Australian Capital Market Fund

and how much $