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NISM Certifications · NISM-Series-X-A: Investment Adviser (Level 1) · Portfolio Construction Process

A portfolio of Rs 8,00,000 is rebalanced to a target of 50% equity and 50% debt. Its equity is now worth Rs 5,00,000 and debt Rs 3,00,000, with no cash flows allowed. How much equity must be sold and moved into debt?

The portfolio is worth Rs 8,00,000, so a 50% equity target is Rs 4,00,000. Since equity is Rs 5,00,000, Rs 1,00,000 must be sold and added to debt, bringing both asset classes to Rs 4,00,000 each.

  1. ARs 1,00,000Correct
  2. BRs 50,000
  3. CRs 2,00,000
  4. DRs 1,50,000

Explanation

Total is Rs 8,00,000, so the 50% equity target is Rs 4,00,000. Equity is Rs 5,00,000, so Rs 1,00,000 must be sold. Check: debt becomes 3,00,000 + 1,00,000 = 4,00,000, which is 50%. Rs 50,000 mistakenly splits the difference; Rs 2,00,000 uses the gap between equity and debt without halving it.

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