Quick Percentage-Of-Portfolio Question

CFA Level III
#1

Schweser Practice Problem:

Set a corridor width of plus or minus 7.5%.

Question: Where do they get the following tolerance bands from:

Asset Class Target Weights: Tolerance Band: Allocation on May 31

US Equity 40% 37%-43% 42%

International Equity 25% 23.125%-26.875% 23%

US Fixed Income 20% 18.5%-21.5% 19%

Other Asset Classes 15% 13.875%-16.125% 16%

None of these corridors are plus or minus 7.5%. What gives?

#2

Equity target weight = 40% . 40x 1.075 = 43%. 40 x (1-.075)= 37%

Int’l Equity target weight = 25%, 25 x 1.075 = 26.875%, 40x (1-.075)=23.125%

etc./

#3

Its +/- 7.5% OF the target alloction (hence why US Equity, the largest allocation of 40%, has the widest tolerance band.

#4

Absolute Bands (+/- 7.5%)

20% = 27.5% - 12.5%

Percentage of Portfolio (+/- 7.5%)

20% = 21.5% - 18.5%

#5

oh ok. I was adding and subtracting 7.5% to equity, etc.

Thank you.