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XXI NISM Series XXI-A
Medium

What is the source of rebalancing gains in a 'Buy and Hold' portfolio strategy, and what should be the ceiling on the same?

Practice question from NISM XXI A for PMS - Mock Test 4 — bank. The correct answer is highlighted below with a full explanation.

Options

  1. A

    The source is the Volatility-free component, and the ongoing return on the market portfolio is the ceiling

  2. B

    The source is the Beta of the risky portfolio, and the ceiling is the portfolio beta times market return

  3. C

    The source is the Risky component, and its maximum ceiling should be 5%

  4. As there is no rebalancing, there is no source, and the dynamic risky component has the potential to grow without a ceiling

    Correct answer

Why this is the answer

In buy-and-hold, no rebalancing occurs; hence, no rebalancing gains are generated, and the risky component can grow indefinitely with market performance.

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NISM XXI A for PMS - Mock Test 4