RE-BALANCING A CLIENT PORTFOLIO #6

Twelve months ago, you established an investment portfolio for your clients Bismark and Lizzie. 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 75% in a European Bond Fund and 25% in an Asian Equity Fund, in line with their target asset allocation.

Today you are reviewing Bismark and Lizzie's investments, and the performance of both funds.

TheEuropean Bond Fundhas returned a negative 4.8% and theAsian Equity Fund has returned 10.5% in the previous 12 months.

You want to re-balance Bismark and Lizzie'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 theEuropean Bond Fundand theAsian Equity Fund.

Original Investment Current Value of Investment after 12 months

European Bond Fund $ ? $ ?

Asian Equity Fund $ ? $ ?

Total $ ? $ ?

Assuming Bismark and Lizzie are comfortable re-balancing their portfolio and wish to proceed.

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

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

Question 3: Which investment will be purchased? and how much?$

Question 4:Which investment will be sold? and how much?$