Corridor rebalancing

Question 8A of the 2010 AM exam asks: “Determine whether Brown’s calendar rebalancing method would result in a higher, lower, or the same weighting in international equity holding on 1 april, as compared to Malik’s percentage of portfolio rebalancing method.” In the context it says: “Malik suggests that Brown consider percentage-of-portfolio rebalancing with daily monitoring and rebalancing to target weights. He offers to demonstrate how the two approaches would differ after rebalancing on 1 APril, given the allocations shown in Exhibit 1, with tolerance bands or corridor widths set at +/- 10% of the target allocation” Exhibit 1 Asset Class Target weights Closing March31 Allocation Large Cap UK Equity 30% 27% International Equity 30% 28% UK Fixed Income 40% 45% The answer states that they would both rebalance. The calendar rebalancing makes sense but then it says that since the UK Fixed Income weights of 45% is outside the tolerance, all asset classes would be rebalanced to target weights From the schweser reading on page 47 of book 5 it says that an allocation of 50% +/- 5% would result in a range of 45%-55%. I would think that this question should give each asset class a +/- 10% range and therefore it would not be rebalanced. can someone please explain what i am missing here? Thanks

14th post on this subject…search forum… Just 5 posts down you would see the last posts on this subject.

Haha good one, you’re such a jokester!

bpdulog Wrote: ------------------------------------------------------- > Haha good one, you’re such a jokester! Not me, I have no sense of humor.

thanks. didn’t see that

No way! I swore I got that question right