A portfolio manager has a stock portfolio valued at $150 million. Anticipating a sharp correction in equity prices, he initiates a constant proportion portfolio insurance (CPPI) strategy to protect his portfolio from declining below a floor level of $120 million. Setting the multiplier at 3.0, he sells off the required amount of stock and invests the proceeds in treasury bills. 

If stock prices fall by 19.3% over the next month while treasury bills earn 0.1%, what will be the value of his portfolio?

Answer rating: 100% (QA)

To calculate the value of the portfolio after the CPPI strategy has been implemented we need to foll... View the full answer