Alexis and Maxwell have decided to invest their investment dollars: 40 percent in stocks,30 percent in bonds,and 30 percent in cash equivalents.Over the past year,the market value of their bonds increased while the market value of their stocks declined.Using the asset allocation model,they should now
A)use some of their cash equivalents to buy more bonds.
B)use some of their cash equivalents to buy more stocks.
C)sell some of their stocks and buy more bonds.
D)sell some of their bonds and buy more stocks.

Question

Quizplus · Accepted Answer

Following the asset allocation model, Alexis and Maxwell should rebalance their portfolio to maintain their desired asset allocation. Since the value of their stocks declined and the value of their bonds increased, they should sell some of their bonds (which have increased in value and thus likely represent a larger portion of their portfolio than intended) and buy more stocks (which have decreased in value and likely represent a smaller portion of their portfolio than intended) to return to their original allocation of 40% stocks, 30% bonds, and 30% cash equivalents.

Alexis and Maxwell Have Decided to Invest Their Investment Dollars