### Portfolio Rebalance Question on CPPI StrategyA CPPI (Constant Proportion Portfolio Insurance) portfolio has a floor value of $4 million, a market value of $7 million, and a multiplier of 1.5. When employing this investment strategy, it's important to adjust asset allocations in response to market movements to ensure the portfolio's value remains above its floor value while maximizing potential growth.### Scenario Details:- **Floor Value:** $4 million- **Market Value:** $7 million- **Multiplier:** 1.5### Market Changes:- **Stocks increase by 20%**- **Bonds increase by 12%**### Rebalancing Recommendations:Given the changes in the market:- **Option 1: Buy $900,000 in stocks and sell $900,000 in bonds**- **Option 2: Buy $900,000 in bonds and sell $900,000 in stocks**- **Option 3: Buy $1,200,000 in stocks and sell $1,200,000 in bonds**- **Option 4: No action because a CPPI portfolio is passively managed**In the context of a CPPI strategy, these options explore different rebalancing actions to take in response to fluctuations in the stock and bond markets. Remember, the chosen action should align with the goal of maintaining the floor value while leveraging the multiplier to capitalize on market upswings.**Note:** CPPI strategies typically involve active rebalancing, so the correct answer must reflect this principle.

The portfolio of a company indicates the number of shares the company is investing in and all the…

A CPPI portfolio has a floor value of $4 million, a market value of $. million, and a multiplier of 1.5. If stocks increase by 20% and bonds increase by 12%, rebalancing requires O buying $900,000 in stocks and selling $900,000 in bonds O buying $900,000 in bonds and selling $900,000 in stocks O buying $1,200,000 in stocks and selling $1,200,000 in bonds O no action because a CPPI portfolio is passively managed

A CPPI portfolio has a floor value of $4 million, a market value of $. million, and a multiplier of 1.5. If stocks increase by 20% and bonds increase by 12%, rebalancing requires O buying $900,000 in stocks and selling $900,000 in bonds O buying $900,000 in bonds and selling $900,000 in stocks O buying $1,200,000 in stocks and selling $1,200,000 in bonds O no action because a CPPI portfolio is passively managed

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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A bank has estimated its VAR for its bond portfolio is $25,600 and for its stock portfolio, it is $33,600. The correlation coefficient between the two portfolios is -0.25. How much VAR would be reduced if they were allowed to aggregate the VAR of the two portfolios? A $36,800.00 B $59,200.00 C $10,400.00 D $22,400.00
Currently the rate of return of the risk-free government bond is 3% while the expected rate of return on the market is 11%. Using CAPM, calculate the rate of return required for A plc who has a beta of 0.8 and B plc who has a beta of 1.35. If you create a portfolio with 40% of funds in A plc and the remainder in B what return would you expect?
The composition of the Fingroup Fund portfolio is as follows: Stock Shares Price A 200,000 $ 34 B 280,000 38 C 410,000 30 D 580,000 45 During the year the portfolio manager sells all of the holdings of stock D and replaces them with 200,000 shares of stock E at $30 per share and 300,000 shares of stock F at $67 per share. What is the portfolio turnover rate? (Round your answer to 1 decimal place.) Turnover rate %
You invest in a fixed-income portfolio that has only two annual-coupon bonds. The YTM for both bonds is 7.5%. • Bond Quest a 4-year, 4.0% coupon with a $1,000 face value; current price of $882.77 • Bond Rapid is an 8-year, 11.0% coupon with a $1,000 face value; current price of $1,205.01 What is the portfolio duration, that is, the duration of both instruments considered together, using the prices of the bonds? (Hint: This is not just the arithmetic average of the two individual bond durations.) 4.84 years 5.01 years 4.42 years 3.76 years 5.25 years
FIXY has assets of $2 million invested in a 25-year, 6 percent annual coupon Treasury bond selling at par. The assets are financed with equity and a $ 1700000, 4-year, 3 percent annual coupon capital note selling at par. What is the leverage adjusted duration gap of FIXY? What is the impact on equity value if the relative change in all market interest rates is AR/(1+R /2)=0.003?
You have 4 types of assets in your portfolio: Corporate bonds earn 5% return and make up 15% of your portfolio Large cap stocks earn 12% return and make up 45% of your portfolio Government bonds earn 2% return and make up 10% of your portfolio International stocks earn 11% return and make up 30% of your portfolio What is the average rate of return on your portfolio? Find the weighted average of the returns. Enter your answer as two decimal places
Consider a portfolio with stocks A, B, and C. The total value of the portfolio is $245,000 and it is fully invested in these 3 stocks. $85,653 is invested in A and $69,552 is invested in B. The Betas of stocks A, B, and C are 1.2, .8, and 1.62, respectively. What is the Beta of the portfolio overall?
You have 4 types of assets in your portfolio: Corporate bonds earn 2% return and make up 5% of your portfolio Large cap stocks earn 15% return and make up 50% of your portfolio Government bonds earn 9% return and make up 25% of your portfolio International stocks earn 7% return and make up 20% of your portfolio What is the average rate of return on your portfolio? Find the weighted average of the returns. Enter your answer as two decimal places and do not include the percent sign.
You have $56,000. You put 24% of your money in a stock with an expected return of 12%, $32,000 in a stock with an expected return of 15%, and the rest in a stock with an expected return of 20%. What is the expected return of your portfolio? The expected return of your portfolio is%. (Round to two decimal places.)
You own a portfolio that has 1,000 shares of stock A, which is priced at $13.43 per share and has an expected return of 16.85 %, and 3,000 shares of stock B, which is priced at $9.10 per share and has an expected return of 7.61%. The risk-free return is 4.72% and inflation is expected to be 2.75%. What is the risk premium for your portfolio? 7.91% (plus or minus 4 bps) 7.51% (plus or minus 4 bps) 5.94% (plus or minus 4 bps) 10.66% (plus or minus 4 bps) None of the above is within 4 bps of the correct answer
A portfolio manager is holding the following investments: Stock Amount Invested Beta 10 million 1.4 Y 20 million 1.0 Z 40 million 0.8 The manager plans to sell his holdings of Stock Y. The money from the sale will be used to purchase another $15 million of Stock X and another $5 million of Stock Z. The risk-free rate is 5 percent and the market risk premium is 5.5 percent. How many percentage points higher will the required return on the portfolio be after he completes this transaction?
If the firm’s bonds earn a return of 12 percent, what will rs be based on the bondyield-plus-risk-premium approach, using the midpoint of the risk premium range?The earnings, dividends, and common stock price of Carpetto Technologies Inc. are expected to grow at 7 percent per year in the future. Carpetto’s common stock sells for $23 per share, its last dividend was $2.00, and it will pay a dividend of $2.14 at the end of the current year. a)Assuming you have equal confidence in the inputs used for the three approaches, what is your estimate of Carpetto’s cost of common equity? b)If the firm’s bonds earn a return of 12 percent, what will rs be based on the bondyield-plus-risk-premium approach, using the midpoint of the risk premium range?

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