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What would be the total portfolio value

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Reference no: EM131627107

Question: Choose a high-growth mutual fund and a money market mutual fund. Find and record their closing net asset values at the end of each week for the immediate past year. Assume that you wish to invest $10,400.

a. Assume you use dollar-cost averaging to buy shares in both the high-growth and the money market funds by purchasing $100 of each of them at the end of each week-a total investment of $10,400 (i.e., 52 weeks * $200/week). How many shares would you have purchased in each fund by year-end? What are the total number of shares, the average cost per share, and the year-end portfolio value of each fund? Total the year-end fund values and compare them to the total that would have resulted from investing $5,200 in each fund at the end of the first week.

b. Assume you use a constant-dollar plan with 50% invested in the high-growth fund (speculative portion) and 50% invested in the money market fund (conservative portion). If the portfolio is rebalanced every time the speculative portion is worth $500 more or $500 less than its initial value of $5,200, what would be the total portfolio value and the number of shares in the speculative portion at year-end?

c. Assume that, as in part b, you initially invest 50% in the speculative portion and 50% in the conservative portion. But in this case you use a constant-ratio plan under which rebalancing to the 50:50 mix occurs whenever the ratio of the speculative to the conservative portion is greater than or equal to 1.25 or less than or equal to 0.75. What would be the total portfolio value and the number of shares in the speculative portion at year-end?

d. Compare and contrast the year-end values of the total portfolio under each of the plans in parts a, b, and c. Which plan would have been best in light of these findings? Explain.

Reference no: EM131627107

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