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

Today you are reviewing Thomas and Mercy's investments, and the performance of both funds.

TheEmerging Market Bond Fund has returned 12.5% and theAustralian Capital Market Fund hasreturned 4.9% in the previous 12 months.

You want to re-balance Thomas and Mercy'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 theEmerging Market Bond Fund and theAustralian Capital Market Fund.

Original Investment Current Value of Investment after 12 months

Emerging Market Bond Fund $ ? $ ?

Australian Capital Market Fund $ ? $ ?

Total $ ? $ ?

Assuming Thomas and Mercy are comfortable re-balancing their portfolio and wish to proceed.

Question 1: How much should be in theEmerging Market Bond Fund?

Question 2: How much should be in theAustralian Capital Market Fund?

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

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