Skip to content

CA Final · Advanced Financial Management · Portfolio Management

Meera follows a constant ratio plan with a 50:50 split between equity and bonds. She starts with Rs 5,00,000 in each. Equity later rises to Rs 6,50,000 while the bond holding stays at Rs 5,00,000. What action does the plan require at this revision point?

Sell equity worth Rs 75,000 and buy bonds worth Rs 75,000. The portfolio totals Rs 11,50,000, so a 50:50 ratio needs Rs 5,75,000 in each asset. Equity stands at Rs 6,50,000, which is Rs 75,000 above target, so that amount moves into bonds.

  1. ASell equity worth Rs 75,000 and buy bonds worth Rs 75,000Correct
  2. BSell equity worth Rs 1,50,000 and buy bonds worth Rs 1,50,000
  3. CBuy more equity worth Rs 75,000 by selling bonds
  4. DTake no action until equity reaches a pre-fixed trigger point of 60% of the portfolio

Explanation

Total value is Rs 11,50,000, so a 50:50 ratio means Rs 5,75,000 in each. Equity is Rs 75,000 above target, so Rs 75,000 of equity is sold and moved to bonds. Selling Rs 1,50,000 wrongly removes the whole equity gain and then some, and buying equity would move the portfolio further from the target ratio.

Did you get it right without looking?

One question tells you little. A timed set on Portfolio Management shows your real accuracy, how long you take and where you lose marks.

Practise Portfolio ManagementFree diagnostic mock

More Portfolio Management questions