| Course | MT423 Asset Allocation and Risk Management |
|---|---|
| Unit | Unit 10 |
| Paper type | Rebalancing policy |
| Length | About 950 words, 6 pages double-spaced |
| Format | APA 7 student paper |
| School | Purdue University Global |
| Program | BS in Business Administration |
| Updated | October 2026 |
Free sample paper for MT423 Unit 10
Rules Two Readers Would Follow Identically: An MT423 Unit 10 Rebalancing Policy With a Tested Band
[Student Name]
Purdue University Global
MT423: Asset Allocation and Risk Management
Unit 10 Rebalancing Policy
[Instructor Name]
[Date]
Denise Hartley's accounts are composite; the simulation draws 2,000 composite twenty-year paths from the Unit 4 assumptions, and the sources cited are real.
1. Purpose
This policy keeps Denise's portfolio close to its target allocation as markets move, so that her risk stays inside the capacity limit her plan was built on. It replaces judgment about when to trade with rules. It covers her SEP-IRA, her Roth IRA and her taxable brokerage account, treated as one portfolio.
2. Targets
The target allocation is the Unit 5 mix, half in stock classes and half in bonds, inflation-protected Treasuries and cash, adjusted each birthday to the stock share in the Unit 7 glide path table. When the stock share changes, the stock classes and the safe classes each keep their relative weights. The current target is always the figure for her age on the most recent birthday.
3. Review Dates
The portfolio is reviewed on the first business day of January, April, July and October, using closing values from the previous business day. A review is also held on her birthday to apply the new glide path target. No other review triggers a trade.
4. Triggers
A rebalance is required at a review if either of two conditions holds. The first is an absolute band on the total stock share: total stocks, meaning U.S. stocks, international stocks and real estate trusts together, sit more than 5 percentage points above or below their target. At a 50 percent target, that means outside 45 to 55 percent.
The second is a relative band on each class: any single class sits more than 25 percent of its own target away from that target. For the 5 percent real estate position, the band is 3.75 to 6.25 percent. For the 30 percent core bond position, it is 22.5 to 37.5 percent. For U.S. stocks at 32 percent, it is 24 to 40 percent.
The relative band exists because an absolute band on the total alone would let a small class drift far from its weight. Real estate trusts could double from 5 to 10 percent while the total stock share stayed inside its band, and that drift would carry real estate risk Denise never chose.
An absolute band guards the total; a relative band guards the small classes the total would hide.
5. Destination
When either trigger is met, every class is returned to its target weight, not merely to the edge of its band. Trading all the way to target is simpler to follow and makes the next drift start from the same place.
6. Order of Accounts and Trades
All rebalancing trades start inside the SEP-IRA, since a sale there creates no taxable gain. If the SEP-IRA cannot complete the rebalance, trades move to the Roth IRA. The taxable account is used last, and within it, shares with losses are sold before shares with gains, and shares with the highest cost basis before those with the lowest. Dammon et al. (2004) showed that where assets are held matters for after-tax results, and the same logic governs where they are traded.
Before any sale, new contributions and required withdrawals are directed toward classes below target and taken from classes above target. If those flows bring every class inside its band, no other trade is made.
7. No Discretion
No exceptions are permitted for market forecasts, news or the views of any adviser. The only permitted delay is a market closure on a review date, in which case the review moves to the next business day. Any change to these rules requires a written amendment, dated and signed by Denise, and takes effect at the next quarterly review.
8. Records
Each review is recorded with the date, the weights of every class, whether a trigger was met and the trades made, including the account and the tax lots used.
9. Policy Review
The policy itself is reviewed once a year, at her birthday review, alongside the capacity calculation and the stress test.
The Simulation Behind the Bands
The bands were tested rather than asserted. Using the Unit 4 assumptions for returns, volatilities and correlations, a script drew 2,000 composite twenty-year paths of quarterly returns for the six classes, with the target held at 50 percent stocks for comparability. For each path it tracked the gap between the actual and target stock share at every quarter end under three rules.
Never rebalancing let the stock share drift an average of about 9.2 percentage points from target, enough to change the portfolio's risk substantially. Rebalancing every year required 20 trades over twenty years and held the average drift to about 2.4 points. The policy's rule, quarterly checks with both bands, required about 10 trades on average and held the drift to about 2.4 points as well. The rule therefore matches annual rebalancing on drift with about half as many trades.
Arnott and Lovell (1993) argued that disciplined rebalancing controls risk more reliably than it adds return, and Masters (2003) proposed choosing band widths by weighing the cost of trading against the cost of drift. The simulation is a simple version of that weighing for Denise's portfolio.
Limits of the Test
The simulated paths draw from fixed assumptions with normally distributed returns, which understates the clustered crises of real markets, and they ignore taxes and trading costs that the account order is designed to reduce. The test supports the choice of bands; it does not prove they are best in every market.
References
Arnott, R. D., & Lovell, R. D. (1993). Rebalancing: Why? When? How often? Journal of Investing, 2(1), 5-10. https://doi.org/10.3905/joi.2.1.5
Dammon, R. M., Spatt, C. S., & Zhang, H. H. (2004). Optimal asset location and allocation with taxable and tax-deferred investing. Journal of Finance, 59(3), 999-1037. https://doi.org/10.1111/j.1540-6261.2004.00655.x
Masters, S. J. (2003). Rebalancing. Journal of Portfolio Management, 29(3), 52-57. https://doi.org/10.3905/jpm.2003.319883
Reading the MT 423 Unit 10 instructions
Unit 10 asks students to write a rebalancing policy precise enough to follow without judgment. Instructors check that the policy states its targets, its review dates, the trigger for a trade, the destination of each trade and the account in which it is made. Bands should cover both the total stock share and each class, since an absolute band alone lets small classes drift far from their weights. Tax treatment matters: trading first in tax-deferred accounts, and choosing lots carefully in taxable ones, saves money. Cash flows such as contributions and withdrawals should be used to rebalance before any sale. Discretionary exceptions defeat the purpose. The choice of bands should be tested, often by simulation, against alternatives such as never rebalancing and rebalancing on a calendar.
How this MT423 Unit 10 example is built
This sample is written as nine numbered clauses. Purpose, targets tied to the glide path and fixed review dates come first. The trigger clause sets an absolute band on total stocks and a relative band on each class, with three worked examples, under a highlighted line on what each band guards. Destination, the order of accounts and lots, and the use of cash flows follow, citing Dammon and colleagues on location. A no-discretion clause permits only a market-closure delay and written amendments. Records and an annual policy review complete the rules. The simulation section tests the rule against never rebalancing and annual rebalancing over 2,000 paths, citing Arnott and Lovell and Masters, and a limits section notes what the test assumes.
Where the points sit in the MT423 Unit 10 rubric
Rebalancing policies are typically graded on whether every rule is specific enough that two readers would act identically. Policies that say to rebalance periodically or when appropriate fail that test at once. Rubrics check that triggers, destinations and accounts are all specified. Credit goes to relative bands for small classes, which absolute bands on the total would miss. Ordering trades by account and tax lot shows the policy considers after-tax results. Using contributions and withdrawals before selling earns practical marks. Allowing discretionary exceptions reintroduces the judgment the policy exists to remove and loses credit. Choices tested against alternatives, with the test's limits stated, score higher than choices asserted, and a short appendix with the simulation results supports them.
Common MT423 Unit 10 mistakes, and how to avoid them
The most common weak policy says to rebalance once a year or when markets move significantly, which two readers would interpret differently. Another frequent error sets a band on total stocks only, so a 5 percent real estate position can double without triggering a trade. Students often forget to say where trades happen, and selling in the taxable account first creates avoidable tax. Many policies allow the manager to skip a rebalance when markets look uncertain, which brings back forecasting. Bands are usually chosen by habit rather than tested. Before submitting, give your policy and one quarter's statements to a classmate and ask them to list the trades. If their list differs from yours in any line, the clause behind that line needs another sentence.
Get an MT423 Unit 10 example written to your instructions
Rebalancing rules vary with the accounts and allocation in a case, so the free first MT423 Unit 10 policy is written from yours, triggers, destinations and account order specified tightly enough to apply mechanically. It follows your rubric, lands inside 24-48h, and a simulation comparing rules can accompany it where evidence is expected. The paper above is an original model document written by our desk, not a submitted student paper and not an official Purdue University Global document.
More MT423 papers and BS in Business Administration samples
- MT423 Unit 1: Downturn Exit Board Post
- MT423 Unit 2: Risk Tolerance Assessment
- MT423 Unit 3: Risk Capacity Analysis
- MT423 Unit 4: Asset Class Review
- MT423 Unit 5: Strategic Allocation Proposal
- MT423 Unit 6: Tactical Allocation Seminar Reflection
- MT423 Unit 7: Glide Path Design
- MT423 Unit 8: Stress Test Report
- MT423 Unit 9: Sequence Risk Illustration
- MT422 Unit 10: Portfolio Construction Proposal
- MT421 Unit 10: Personal Financial Plan
- MT400 Unit 10: BPM Initiative Report
MT423 Unit 10 questions, answered
Calendar or threshold rebalancing?
Each has support. Calendar rules are simple to follow; threshold rules trade only when drift is large enough to matter, which often means fewer trades. Many policies combine them, checking on a schedule and trading only past a band. Whatever the choice, the policy should say how it compares with the alternatives it rejected.
How wide should rebalancing bands be?
Wide enough to avoid trading on noise and narrow enough that the portfolio stays near its intended risk. Five percentage points on a major class and a relative band of about a quarter of the target for small classes are common starting points. A simulation or backtest showing the tradeoff strengthens whatever width is chosen.
Does the policy need to address taxes?
If any account is taxable, yes. Specifying that trades happen in tax-deferred accounts first, and that new money is directed toward underweight classes before anything is sold, can remove most taxable rebalancing. Leaving tax out means two readers might choose different accounts for the same trade, which defeats the policy's purpose.
Where can I find a free MT423 Unit 10 sample paper?
The full MT423 Unit 10 rebalancing policy is here, with quarterly checks, two kinds of band, an account order and a 2,000-path simulation.
Why does the MT423 Unit 10 sample use a relative band for each class?
Without it a small class could drift far from its weight, for example real estate doubling to 10 percent, while total stocks stayed inside their band.