CA Final · Advanced Financial Management · Portfolio Management
An investor follows a constant-mix strategy for a ₹10 crore portfolio, with a target of 60% equity and 40% debt. After a market fall, equity value drops by 20% while debt value is unchanged. To restore the 60:40 mix, what should the investor do?
The investor should buy equity worth ₹0.48 crore by selling debt. After the fall the portfolio is ₹8.8 crore, so 60% equity means ₹5.28 crore, while equity is only ₹4.8 crore. A constant-mix strategy buys equity after declines.
- ABuy equity worth ₹0.48 croreCorrect
- BBuy equity worth ₹1.20 crore
- CSell equity worth ₹0.48 crore
- DBuy equity worth ₹0.80 crore
Explanation
Equity falls from ₹6 crore to ₹4.8 crore; debt stays ₹4 crore; total ₹8.8 crore. Target equity = 60% × 8.8 = ₹5.28 crore. Purchase needed = 5.28 − 4.8 = ₹0.48 crore, funded by selling debt. Buying ₹1.20 crore would restore the original equity value, not the 60% weight.
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