If the economic outlook was such that you expected corporate earnings to decline, consumers have excessive levels of debt, and there to be significant overcapacity in the technology sector, then an appropriate asset allocation policy would be to:
A) overweight equity especially technology stocks and underweight bonds.
B) underweight equity especially technology stocks and overweight bonds.
C) overweight equity especially technology stocks and overweight bonds.
D) underweight equity especially technology stocks and underweight bonds.
E) none of the above.

Question

Quizplus · Accepted Answer

If the economic outlook is negative, it is wise to reduce exposure to equities and focus on fixed income securities such as bonds because earnings are expected to decline. Overcapacity in the technology sector is likely to affect the industry's profitability, resulting in lower equity prices. Consumers' excessive debt levels are likely to result in lower consumption levels, leading to lower corporate earnings, putting downward pressure on equity prices. Therefore, an appropriate asset allocation policy would be to underweight equity, especially technology stocks, and overweight bonds to reduce the portfolio's overall risk.

If the Economic Outlook Was Such That You Expected Corporate