The 60/40 equity-bond portfolio over time has become 75/25. How much of your portfolio will be lost if the equity market drops by 50%?

Question

BlackTom AI · Accepted Answer

Equity holdings will lose half their value, so the portfolio loss equals the equity weight multiplied by 50%.

1) Relevant concepts
- Portfolio loss from an asset drop = weight of that asset × percentage drop in that asset (assuming other holdings unchanged).
- If a 60/40 portfolio has drifted to 75/25, the current equity weight is 75% (0.75).

2) Step-by-step reasoning and calculations
- Represent the current portfolio as $100 total for simplicity.
- Equity portion = 75% of $100 = $75.
- Bond portion = 25% of $100 = $25.
- Equity market drop = 50% → equity value after drop = $75 × (1 − 0.50) = $75 × 0.50 = $37.50.
- Loss in dollars from equities = original equity $75 − new equity $37.50 = $37.50.
- Total portfolio value after the drop = new equity $37.50 + bonds $25 = $62.50.
- Percentage of the original portfolio lost = loss $37.50 ÷ original $100 = 0.375 = 37.5%.

Alternative concise formula: portfolio loss% = equity weight × equity drop% = 0.75 × 0.50 = 0.375 = 37.5%.

3) Why the correct answer is correct
Because only the equity portion falls and it now represents 75% of the portfolio, half of that 75% is lost, giving a 37.5% total portfolio loss.

4) Why the other choices are incorrect
- a. 50% would be true only if the entire portfolio (100% equities) fell 50%; not the case here.
- b. 30% equals 60% × 50% (the original 60/40 allocation) — that would be the loss if the allocation had remained 60% equities, but it has drifted to 75%.
- d. 25% equals 50% × 50% (if equities were 50% of the portfolio), which is not the current weight.

Conclusion: The portfolio will lose 37.5%, which matches answer c.

The 60/40 equity-bond portfolio over time has become 75/25. How much of your portfolio will be lost if the equity market drops by 50%?多项选择题

类似问题

You have $10,000 to invest. You invested $3,500 in Firm 1 and the remaining amount in Firm 2. The return on these firms is 20% and 15%, respectively. The return on your portfolio is:

American Corporation has 40% of holdings in the US and 60% of holdings in Europe. If the US holdings appreciated 30% over the last year and European holdings appreciated 25%, what is the portfolio return of the American Corporation?

更多留学生实用工具

智能学习助手

风格化写作助手

论文查重助手

文献引用助手

课堂转译助手

课堂笔记助手

Quiz搜索助手

学校历年真题

智能刷题助手

智能匹配练习

希望你的学习变得更简单