Q: "Smith is the financial advisor to Steve Hernandez and Michael Lee. Hernandez is a 35-year old physician with an annual income of $200,000 and financial wealth of $250,000. Hernandez’s financial wealth is expected to significantly increase to $1,000,000 over the next 2 months due to an inheritance. Michael Lee is a 35-year old equity trader with an average annual income of $200,000. Lee’s income exhibits a 0.90 correlation to the performance of the S&P 500."
"Recommend which of the following portfolio construction strategies are optimal for Hernandez and Lee and justify the selections.
Allocation:
Stocks AAA-rated government bonds
Strategy A
100% 0%
Strategy B
80% 20%
Strategy C
65% 35%
Strategy D
20% 80%
Strategy E
0% 100%"
Can someone please explain why Strategy C is optimal for Hernandez and Strategy B is optimal for Lee.
Is this question asking the overall portfolio or the FC portion that balances HC?
"Recommend which of the following portfolio construction strategies are optimal for Hernandez and Lee and justify the selections.
Allocation:
Stocks AAA-rated government bonds
Strategy A
100% 0%
Strategy B
80% 20%
Strategy C
65% 35%
Strategy D
20% 80%
Strategy E
0% 100%"
Can someone please explain why Strategy C is optimal for Hernandez and Strategy B is optimal for Lee.
Is this question asking the overall portfolio or the FC portion that balances HC?