Suppose you are managing a $1,000,000 portfolio of stocks and bonds with a constant mix strategy of 50% stocks and 50% bonds. If the stock market increases 20% and the bond market increases 10%, rebalancing would require
A) selling $25,000 in stocks and buying $25,000 in bonds
B) selling $25,000 in bonds and buying $25,000 in stocks
C) selling $50,000 in stocks and buying $50,000 in bonds
D) selling $50,000 in bonds and buying $50,000 in stocks

Question

Quizplus · Accepted Answer

The portfolio is currently 50% stocks and 50% bonds. After the market increases, the portfolio is 60% stocks and 40% bonds. To rebalance, we need to sell 10% of the stocks and buy 10% of the bonds. This means selling $50,000 in stocks and buying $50,000 in bonds.

Suppose You Are Managing a $1,000,000 Portfolio of Stocks and Bonds