Rebalancing corridor %

[archived_user]

Hi,
If you have a strategic asset allocation corridor of 50% +/-5% the allowable range is 45%-55% or 47.5%-52.5%.
I always thought is the second one but on the 2014 mock examn they apply the first method.
Anyone knows? Am I missing smth?
Thanks.
Good luck tomorrow everyone.

 

[archived_user]

It means 50 plus or minus 5%. So 45-55.

 

[archived_user]

defacto wrote: It means 50 plus or minus 5%. So 45-55.

Most of the time, but not always. Check the wording carefully.

 

[archived_user]

I think it depends on the wording of the question:
% of Target Allocation: Multiplicative
% of Total Portfolio: Additive
2014 did not specify but they provided the ranges. 2010 did specify % of target allocation so multiplicative was used.

 

[archived_user]

Also remember that if any of the securities in the portfolio goes outside of their range, then all of them must be rebalanced back. This came up in one of the past papers (2014 or 2013) and it asked about the new % after rebalancing for an asset class that was still within it’s corridor. The answer was that because another asset class was outside of the corridor, the whole portfolio rebalances back to target weights.