Question

Yang Bai is investing $10,000 and wants a portfolio that is 80% stocks and 20% bonds. She has decided to accomplish this using just 2 exchange-traded funds (ETFs): a stock ETF trading for $50 per share and a bond ETF trading for $100 for share. What should she do to meet her asset allocation goal?

Answer 1

In order to meet her asset allocation goal of 80% stocks and 20% bonds, Yang Bai should purchase 800 shares of the stock ETF ($50 per share) and 200 shares of the bond ETF ($100 per share). This will give her a total of $40,000 worth of stocks and $20,000 worth of bonds, which adds up to the $60,000 she is investing.