A CPPI portfolio has a floor value of $4 million in stocks, a market value of $7 million, and a multiplier of 1.5. If stocks increase by 20% and bonds increase by 12%, rebalancing requires buying $900,000 in stocks and selling $900,000 in bonds
A) buying $900,000 in bonds and selling $900,000 in stocks
B) buying $1,200,000 in stocks and selling $1,200,000 in bonds
C) no action because a CPPI portfolio is passively managed

Question

Quizplus · Accepted Answer

The correct answer is A because the CPPI portfolio is above its floor value and the stocks have increased in value. Therefore, the portfolio needs to be rebalanced by buying stocks and selling bonds.

A CPPI Portfolio Has a Floor Value of $4 Million