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NISM Certifications · NISM-Series-X-B: Investment Adviser (Level 2) · Behavioural Finance in Practice

Caselet: Ms Anita Rao has Rs 10,00,000 split as Rs 6,00,000 in equity and Rs 4,00,000 in debt, her target allocation. After a market rally, equity is worth Rs 9,00,000 while debt stays at Rs 4,00,000. She feels equity is 'working' and wants to leave things alone. To restore her 60:40 target, how much equity should be sold and moved to debt, assuming no costs or taxes?

This item is flawed: the correct rebalancing amount is Rs 1,20,000, found by taking 60% of the Rs 13,00,000 portfolio as target equity (Rs 7,80,000) and selling the excess over Rs 9,00,000. That figure does not appear in the options.

  1. ARs 1,00,000
  2. BRs 1,40,000Correct
  3. CRs 2,00,000
  4. DRs 3,00,000

Explanation

Total = 9,00,000 + 4,00,000 = 13,00,000. Target equity at 60% = 7,80,000. Equity to sell = 9,00,000 - 7,80,000 = 1,20,000? Check debt: 40% = 5,20,000; debt needs 1,20,000 more. So the amount is Rs 1,20,000, which is not among the options; the closest listed value must not be chosen.

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