Hey Guys,
Hope everyone’s studying is going well!! Only 20 days and we may never have to look at another CFA book again!
I’m currently doing some review of rebalancing and am a little stumped in the way that Schweser calculates its constant mix proportions (specifically Question 1 of the Reading #30 Concept Checkers)
So for parts (iv) and (v), we’re asked to calculate the amount of stocks needed to be sold off in order to re-arrive at the desired constant mix. The formula Schweser uses to calculate the rebalancing is this: (Current Allocation - Target Allocation)(Portfolio Size). However, if you then calculate the weighting of the newly rebalanced portfolio (using Schweser’s rebalancing formula), the rebalanced portfolio does not go back to the target allocation percent.
Can anyone explain to me why this is so? Am I thinking about this incorrectly? I just don’t understand how you can be trying to hit a target allocation percentage, but you don’t end up doing it (per Schweser)
Sorry for the super long post, but thanks is advance for any help you can provide!!