Tatiana Is Following a Fixed Weighting Approach to Managing Her

question 91

Multiple Choice

Tatiana is following a fixed weighting approach to managing her portfolio, which on January 1 consisted of 45% common stock, 40% bonds, and 15% short-term securities. Because stocks had a good year, at the end of the year, it consisted of 55% common stock, 35% bonds and 10% short-term securities. As a result,

• A) Tatiana should leave her portfolio as it is to take advantage of momentum in stocks.
• B) she should sell stock and buy bonds and short-term securities to restore the original weightings.
• C) she should sell stock index futures to protect herself from falling prices.
• D) she should sell stock and increase the proportions of bonds and short-term securities because she is now one year older.

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Definitions:

Owner's Equity

The residual interest in the assets of an entity after deducting liabilities, representing the capital owned by the shareholders or owner.

Cash Budget

A budget of estimated cash receipts and payments.

Balance Sheet

A financial statement that summarizes a company's assets, liabilities, and shareholders' equity at a specific point in time, providing a basis for computing rates of return and evaluating its capital structure.

Income Statement

A financial report detailing a company's earnings and expenditures during a set timeframe, ultimately presenting the net profit or deficit for that period.