### 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 have just invested in a portfolio of three stocks. The amount of money that you invested in each stock and its beta are summarized below. Stock A B C Investment $196,000 294,000 490,000 Beta Expected rate of return 1.50 0.55 1.35 Calculate the beta of the portfolio and use the Capital Asset Pricing Model (CAPM) to compute the expected rate of return for the portfolio. Assume that the expected rate of return on the market is 18 percent and that the risk-free rate is 9 percent. (Round beta answer to 3 decimal places, e.g. 52.750 and expected rate of return answer to 2 decimal places, e.g. 52.75%) Beta of the portfolio %
Assume that the CAPM is true, Rf = 5%, Rm= 15% σm = 0.1. An investor with $10,000 to invest builds a portfolio, Q, of T-bills and the market portfolio. This means that: a) it would be possible for the investor to obtain a return of 17% on portfolio Q b) if portfolio Q were composed of short-selling $2,000 in T-bills and the remainder is the market portfolio, then Pqm = 1, βq = 1.2 and σq = 0.12 c) to obtain a return of 17% from portfolio Q the investor would need to invest $12,000 in the market portfolio d) all of the above are true e) only a) and b) above are true. Pls show procedure, thanks
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
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You want to create a $72,000 portfolio comprised of two stocks plus a risk-free security. Stock A has an expected return of 13.6 percent and Stock B has an expected return of 14.7 percent. You want to own $25,000 of Stock B. The risk-free rate is 3.6 percent and the expected return on the market is 12.1 percent. If you want the portfolio to have an expected return equal to that of the market, how much should you invest in the risk-free security? Seleccione una: O a. $12,775 Qb. $13,315 O c. $13,550 O d. $12,987 O e. $12,921 4
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 want to create a portfolio equally as risky as the market, and you have $250,000 to invest. Given this information, fill in the three missing pieces of information in the following table. Show your calculations: Investment Betal 0.90 Asset Stock A $50,000 Stock B $70,000 Stock C Risk-Free Asset 1.25 1.60
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?
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You plan to invest in the Kish Hedge Fund, which has total capital of $500 million invested in five stocks: Investment Stock Stock's Beta Coefficient A $160 million 0.7 B 120 million 1.5 с 80 million 2.2 D E 80 million 60 million 1.0 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 -28% 0.2 0 0.4 13 0.2 0.1 32 48 a. What is the equation for the Security Market Line (SML)? (Hint: First determine the expected market return.) I. n = 1.5% + (11.5%)bi II. 4.0% + (10.9%) bi III. n = 5.5% + (9.6%) bi IV. n = 5.5% + (10.9%)bi V. n = 4.0% + (9.6%)bi V v b. Calculate Kish's required rate of return. Do not round intermediate calculations. Round your answer to two decimal places. 16.13% c. Suppose Rick Kish, the president, receives a proposal from a company seeking new capital. The amount needed to take a position…
You have a $1,000 portfolio which is invested in stocks A, B, and a risk-free asset. $400 is invested in stock A. Stock A has a beta of 1.33 and stock B has a beta of 0.66. How much needs to be invested in stock B if you want a portfolio beta of 0.94?

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