Suppose an Australian investor has decided on an asset allocation of 80% in Australian equities and 20% in international equities. The table below shows the returns for each investment category for each of the three years in Australian dollars. Fund First year Second year Third year International 3% 15% 12% Australian 7% 10% 9%

A) Calculate the total rate of return achieved at the end of year three without rebalancing (no reallocation of funds).

B) If there is annual rebalancing (reallocation of funds to maintain the asset allocation) and the investor begins the first year with $100,000, show the dollar amount of rebalancing that needs to be done in international equities at the beginning of year two.