Answer:
Average rate of return is 7.8%
, and total amount is $4,680
If Kunal wanted to rebalance his portfolio to its original position, he needs to transfer $672 (= $25,872 - $25,200) from stock account to bond account and $816 ( = $12,936 - $12,120) from stock account to cash.
Explanation:
Total return for year = 14% * (40% of $60,000) + 5% * (40% of $60,000+ 1% *(20% of $60,000) = $4,680
Average rate of return = $4,680/ $60,000 = 7.8%
At beginning, the amount in per diversified portfolio is as below:
-
Amount invested in stock = 40% * $60,000 = $24,000
- Amount invested in bond = 40% * $60,000 = $24,000
- Amount in cash = 20% *$60,000 = $12,000
After receiving return, the amount in per diversified portfolio is as below:
Amount invested in stock = $24,000 *(1+14%) = $27,360
- Amount invested in bond = $24,000 *(1+5%) = $25,200
- Amount in cash = $12,000 * (1 + 1%) = $12,120
And amount in Kunal’s investment fund = $27,360 + $25,200 + $12,120 = $64,680
If Kunal wanted to rebalance his portfolio to its original position, the amount in per diversified portfolio is as below:
Amount invested in stock = 40% * $64,680 = $25,872
- Amount invested in bond = 40% * $64,680 = $25,872
- Amount in cash = 20% * $64,680 = $12,936
⇒ Kunal needs to transfer $672 (= $25,872 - $25,200) from stock account to bond account and $816 ( = $12,936 - $12,120) from stock account to cash.
