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Assuming the following Adjusted Trial Balance, recreate the Post-Closing Trial Balance that would result after all closing journal entries were made and posted:

Adjusted Trial Balance\begin{array}{c} \textbf{Adjusted Trial Balance} \end{array}

DebitCreditCash$17,900Accounts Receivable9,900Supplies1,600Prepaid Insurance2,500Salaries Payable$8,600Common Stock10,000Retained Earnings2,800Dividends4,000Service Fee Revenue37,050Salaries Expense16,900Supplies Expense4,200Insurance Expense1,450$58,450$58,450\begin{array}{lcc} &\textbf{Debit}&\textbf{Credit}\\[5pt] \text{Cash}&\text{\$\hspace{1pt}17,900}\\ \text{Accounts Receivable}&\text{\hspace{10pt}9,900}\\ \text{Supplies}&\text{\hspace{10pt}1,600}\\ \text{Prepaid Insurance}&\text{\hspace{10pt}2,500}\\ \text{Salaries Payable}&&\text{\$\hspace{5pt}8,600}\\ \text{Common Stock}&&\text{\hspace{5pt}10,000}\\ \text{Retained Earnings}&&\text{\hspace{10pt}2,800}\\ \text{Dividends}&\text{\hspace{10pt}4,000}\\ \text{Service Fee Revenue}&&\text{\hspace{5pt}37,050}\\ \text{Salaries Expense}&\text{\hspace{5pt}16,900}\\ \text{Supplies Expense}&\text{\hspace{10pt}4,200}\\ \text{Insurance Expense}&\underline{\text{\hspace{10pt}1,450}}&\underline{\text{\hspace{34pt}}}\\ &\underline{\underline{\text{\$\hspace{1pt}58,450}}}&\underline{\underline{\text{\$\hspace{1pt}58,450}}}\\ \end{array}


Imagine you are a provider of portfolio insurance. You are establishing a four-year program. The portfolio you manage is currently worth 100 million dollars, and you promise to provide a minimum return of 0 %. The equity portfolio has a standard deviation of 25 % per year, and T-bills pay 5 % per year. Assume for simplicity that the portfolio pays no dividends (or that all dividends are reinvested).

a. What fraction of the portfolio should be placed in bills? What fraction in equity?

b. What should the manager do if the stock portfolio falls by 3 % on the first day of trading?


Answered 11 months ago
Answered 11 months ago
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The aim of this exercise is to determine, for a portfolio insurance strategy, what fraction of the portfolio should be placed in T-bills, and what fraction in equity. The computation needs to be realized in two scenarios: when the stock portfolio price remains constant during the program, and when this price falls on the first day of trading.

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