Question 8A of the 2010 AM exam asks:
"Determine whether Brown's calendar rebalancing method would result in a higher, lower, or the same weighting in international equity holding on 1 april, as compared to Malik's percentage of portfolio rebalancing method."
In the context it says:
"Malik suggests that Brown consider percentage-of-portfolio rebalancing with daily monitoring and rebalancing to target weights. He offers to demonstrate how the two approaches would differ after rebalancing on 1 APril, given the allocations shown in Exhibit 1, with tolerance bands or corridor widths set at +/- 10% of the target allocation"
Exhibit 1
Asset Class Target weights Closing March31 Allocation
Large Cap UK Equity 30% 27%
International Equity 30% 28%
UK Fixed Income 40% 45%
The answer states that they would both rebalance. The calendar rebalancing makes sense but then it says that since the UK Fixed Income weights of 45% is outside the tolerance, all asset classes would be rebalanced to target weights
From the schweser reading on page 47 of book 5 it says that an allocation of 50% +/- 5% would result in a range of 45%-55%. I would think that this question should give each asset class a +/- 10% range and therefore it would not be rebalanced.
can someone please explain what i am missing here?
Thanks |
发表于 2011-7-13 14:35
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