CA Final · Advanced Financial Management · Portfolio Management
A trust uses a CPPI strategy on a ₹100 lakh portfolio, with a floor of ₹80 lakh and a multiplier of 4. Initially, equity exposure = 4 × (100 − 80) = ₹80 lakh. Equity then falls 10%, with the remainder in a risk-free asset that is unchanged. After rebalancing under the CPPI rule, what is the equity exposure?
Equity exposure after rebalancing is ₹48 lakh. The portfolio falls to ₹92 lakh, so the cushion above the ₹80 lakh floor is ₹12 lakh. CPPI sets equity at the multiplier times the cushion, 4 × 12, which means selling ₹24 lakh of equity.
- A₹48 lakhCorrect
- B₹72 lakh
- C₹80 lakh
- D₹36 lakh
Explanation
Equity becomes 80 × 0.9 = ₹72 lakh; the risk-free asset is ₹20 lakh; portfolio value is ₹92 lakh. Cushion = 92 − 80 = ₹12 lakh. New equity = 4 × 12 = ₹48 lakh, so ₹24 lakh of equity is sold. ₹72 lakh is simply the unrebalanced position.
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