Alexis and Maxwell have decided to invest their investment dollars: 40 percent in stocks, 30 percent in bonds, and 30 percent in cash equivalents. Over the past year, the market value of their bonds increased while the market value of their stocks declined. Using the asset allocation model, they should now?

Question

Jaelyn Lam

Business

11 April, 08:53

Alexis and Maxwell have decided to invest their investment dollars: 40 percent in stocks, 30 percent in bonds, and 30 percent in cash equivalents. Over the past year, the market value of their bonds increased while the market value of their stocks declined. Using the asset allocation model, they should now?

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Answers (1)

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Lailah George · Answer 1

sell some of their bonds and buy more stocks.

Explanation:

The asset allocation model is used to balance the risk and reward from the assets a person hold.

As it is given, the market value of bonds increased over the past year, this means that investment in bonds has become riskier (as paying more money to buy) while selling bonds can earn more rewards (as the value increases).

=> Alexis and Maxwell should sell some of their bonds

On the contrary, the market value of their stocks declined, this means that it is cheaper now to invest in stocks (lower price) so that it would be less risky to invest in stocks.

=> Alexis and Maxwell should buy more stocks.