CPPI math not adding up

[magicskyfairy]

hi all,
exhibit 9 of reading 31 shows that the multiplier (m) value for a CPPI portfolio is m > 1.
Also, formula 3 is the following:
Target investment in stocks = m x (Portfolio Value - Floor value)
floor value is the cash portion of the portfolio. So lets assume the floor value is $40,000, and m = 1.5, and the starting portfolio value is $100,000 (ie I have 60,000 in stocks).
according to this formula, we’d have the following:

Target investment in stocks = 1.5 x ( 100,000 - 40,000) = 1.5 x (60,000) = 90,000
Can someone explain to me what this even means? what the hell is $90,000 then? why would that be my target investment in stocks - if I did that, then I’d be down to $10,000 in cash, in which case the formula would then be 1.5 x(100,000-10,000), and I’d then have a target of $135,000… what am I missing about this formula? am I using it in a super wrong way?

 

[S2000magician]

Floor value is only the cash portion of the portfolio if the portfolio is all cash.
As you calculated, for your portfolio you’d have $90,000 in equity and $10,000 in cash. If the value of your equity dropped, say, $20,000, then your portfolio would be worth $80,000, and you’d want to have:
1.5($80,000 − $40,000) = $60,000
in equity and $80,000 − $60,000 = $20,000 in cash. You’d sell $10,000 of your equity.