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Constant proportion portfolio insurance

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Graeme Smith has a portfolio worth $150,000. He wants to apply the "Constant Proportion Portfolio Insurance" (CPPI) approach to rebalance his portfolio. When applying this strategy, his goal is to maintain a floor value of $120,000 and to invest three times the difference between the portfolio value and the value of this floor in equities, with the rest in cash.

Now, suppose after the initial allocation is determined, Graeme's portfolio worth $150,000 increased by 15% overnight. How much would his CPPI strategy described above now suggest that he should hold in equities and cash?

Reference no: EM132555214

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