a ng.cengage.com PRINCIPLES OF FINANCIAL MANAGEMENT (FIN331001). MINDTAP Bluepri

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a ng.cengage.com PRINCIPLES OF FINANCIAL MANAGEMENT (FIN331001). MINDTAP Blueprint Problems Ch 11 Billingsley 4 Due Today at 10 PM EDT Asset allocation is the proportion of your overall investment portfolio that you have invested in various categories of assets. Typical asset categories include equities (stocks or stock mutual funds), bonds (or bond funds), and cash (or short-term securities, such as treasury bills). The following table illustrates several model portfolios that you can use as a basis for your own investment plan, depending on such factors as your time horizon, your risk tolerance, and your investment philosophy. Model Portfolios and Time Horizons Risk Tolerance/ Investment Philosophy 0-5 Years 6-10 Years11+ Years | 100% Equities | 20% Bonds | 80% Equities 10% Cash 3090 Bonds 60% Equities 20% Cash High Risk /Aggressive 1096 Cash | 30% Bonds | 60% Equities | 2096 Cash | 40% Bonds | 2090 Bonds | 80% Equities Moderate Risk / Moderate : 40% Bonds 40% Equities 35% Cash 40% Bonds 25% Equities 10% Cash | | Low Risk /Conservative 30% Bonds | 60% Equities 40% Equities Suppose that Robyn is a single parent who would like to save some money for her daughter's college education. Her daughter is currently 10 years old and will begin college in approximately 8 years. Although Robyn would like her daughter's college savings to grow, she is also concerned about investing an entire portfolio into the stock market. However, she is comfortable with a medium level of risk for the sake of achieving some level of growth. Robyn is investor with a time horizon of Using the model portfolios provided, what is the ideal asset allocation for Robyn's portfolio, based on her time horizon and investment philosophy? Recommended asset allocation for Robyn's portfolio: Cash Bonds: Equities:

Explanation / Answer

Robyn is moderate risk investor with a time horizon of 6-10 years

Recommended asset allocation for Robyn portfolio

Cash                 10%

Bonds             30%

Equities 60%

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