2010 AM Q8 (Monitoring, Rebal, and Execution)

CFA Level III Portfolio Management
#1

Part A - The corridor is given as +/- 10% from the target weights and the target weight for UK fixed income is 40%. The allocation at the end of the month to UK fixed income is 45%.

The guideline answer says, “…the 45% weighting in UK fixed income is outside the tolerance band. Thus all asset classes would be rebalanced to target weights”

My question - how is 45% + / - 10% from 40%? And if one asset class is out of balance with target weights (in this case UK fixed income per the guideline answer) the answer makes it seem that all weights must be adjusted to target, is this true? Thanks!

#2

given the allocations shown in Exhibit 1, with tolerance bands or corridor widths set at ± 10% of the target allocation. so it is 40% +/- 4% -> 36-44%

and yes, CFAI wants all the asset to be rebalanced, even if one of the asset classes moves out of tolerance range.

#3

Thanks - it’s 10% of target allocation, not just 10% – it’s easy to make simple mistakes, I need to stop making these before Saturday! Thanks again!

#4

Thanks cpk123!