Question
An investor owns a portfolio of securities that is currently worth $400,000 based on a long-term strategic asset allocation of 50% equities, 30% bonds and
An investor owns a portfolio of securities that is currently worth $400,000 based on a long-term strategic asset allocation of 50% equities, 30% bonds and 20% cash. Over the following year, the equities drop in value by 10%, the bonds increase in value by 10% and the cash value remains the same. In order to re-balance the portfolio back to its strategic asset allocation guidelines, what must the portfolio manager do? Buy $20,000 worth of equities, sell $18,000 worth of bonds, sell $2,000 in cash Buy $16,000 worth of equities, sell $14,400 worth of bonds, buy $1,600 in cash Buy $16,000 worth of equities, sell $14,400 worth of bonds, sell $1,600 in cash Buy $14,400 worth of equities, sell $16,000 worth of bonds, buy $1,600 in cash
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