### 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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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
if a $1,000 par value and 9% coupon bonds were currently selling for $970. the current yield would be: Select one: O a. 8.7% O b. 9.27% O c. 90% O d. 8%
A firm has liabilities of $98 in one year, $100 in two years, and $107 in three years. The firm exactly matches its liabilities by purchasing the following zero or annual coupon bonds redeemable at par: Bond Maturity Par Value Coupon Rate Effective Yield A 1 year 100 5% 3% B 2 years 100 0% 4% C 3 years 100 4% 5% Find the number of units of Bond A that must be purchased to match the liabilities exactly. (A) 0.894 (B) 0.897 (C) 0.913 (D) 0.933 (E) 0.959
Consider a coupon bond which has a $50,000 par value and acoupon rate of 20%. The bond is currently selling for $115,000and has 16 years to maturity. Calculate the bond’s yield to maturity. *Formula and Solution not in excel
What is the required rate of return of the portfolio held by Bulldogs Inc. if the nominal rate of the short-term government issued security is 2.25% and the overall market risk premium is 3.50%? a. 2.50% b. 7.50% c. 6.50% d. 1.50%
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
The Bruin Stock Fund sells Class A shares that have a front-end load of 5.65 percent, a 12b-1 fee of 0.25 percent, and other fees of 0.79 percent. There are also Class B shares with a 5 percent CDSC that declines 1 percent per year, a 12b-1 fee of 1.1 percent, and other fees of 0.79 percent. Assume the portfolio return is 12 percent per year.What is the value of $1 invested in each share class if your investment horizon is 3 years?
You plan to invest in the Kish Hedge Fund, which has total capital of $500 million invested in five stocks: Stock Investment Stock's Beta Coefficient A $160 million 0.7 B 120 million 1.4 C 80 million 2.1 D 80 million 1.0 E 60 million 1.4 Kish's beta coefficient can be found as a weighted average of its stocks' betas. The risk-free rate is 4%, and you believe the following probability distribution for future market returns is realistic: Probability Market Return 0.1 -26% 0.2 0 0.4 13 0.2 30 0.1 50 What is the equation for the Security Market Line (SML)? (Hint: First determine the expected market return.) ri = 5.7% + (9.6%)bi ri = 5.7% + (9.5%)bi ri = 4.0% + (9.6%)bi ri = 2.1% + (9.0%)bi ri = 4.0% + (9.5%)bi Calculate Kish's required rate of return. Do not round intermediate calculations. Round your answer to two decimal places. % Suppose Rick Kish, the president, receives a proposal from a company seeking new capital. The amount needed to take a…
Do It correctly with step by step explanation.
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.
None
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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