MT423 Unit 5 Strategic Allocation Proposal Example

Course	MT423 Asset Allocation and Risk Management
Unit	Unit 5
Paper type	Strategic allocation proposal
Length	About 1,140 words, 7 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 5

Capacity Binds at Half Stocks: An MT423 Unit 5 Strategic Allocation Proposal for a 58-Year-Old Client

[Student Name]

Purdue University Global

MT423: Asset Allocation and Risk Management

Unit 5 Strategic Allocation Proposal

[Instructor Name]

[Date]

Denise Hartley and her accounts are composite; expected returns, volatilities and correlations are the supplied assumptions from Unit 4, the crisis replay uses bracketed class losses for the exercise, and the sources cited are real.

What this part is doingNaming the binding constraint and its figure in the lead tells the grader the allocation follows from analysis, not from a band.

The Constraints Side by Side

Three earlier findings bear on how much risk Denise should take. Her score of 34 on the course questionnaire modeled on Grable and Lytton (1999), in the above-average band, would point a rule-of-thumb mapping toward about 70 percent stocks. Her stated tolerance, from the Unit 2 interview, is a one-year fall of $180,000, or 29.8 percent of her investable assets. Her capacity, from the Unit 3 analysis, is a loss of $171,169, or 28.3 percent, beyond which her retirement plan would no longer be fully funded.

The lowest of these governs. Capacity is slightly lower than tolerance, and both are far below what the questionnaire band alone would imply, so the allocation must keep a severe loss under $171,169.

The Candidates

Each candidate uses the six classes from Unit 4.

Candidate A holds 70 percent in stocks: 45 percent U.S. stocks, 18 percent developed international and 7 percent real estate trusts, with 20 percent core bonds, 7 percent inflation-protected Treasuries and 3 percent cash. Under the supplied assumptions it expects 5.96 percent a year with volatility of 11.32 percent.

Candidate B holds 50 percent in stocks: 32 percent U.S., 13 percent international and 5 percent real estate trusts, with 30 percent core bonds, 15 percent inflation-protected Treasuries and 5 percent cash. It expects 5.48 percent with volatility of 8.61 percent.

Candidate C holds 35 percent in stocks: 22 percent U.S., 9 percent international and 4 percent real estate trusts, with 40 percent core bonds, 17 percent inflation-protected Treasuries and 8 percent cash. It expects 5.12 percent with volatility of 6.78 percent.

Testing Each Against the Limit

Each candidate needs a downside measure expressed in the same terms as the limit, a dollar loss on today's $605,000. The test replays bracketed class losses resembling the 2007 to 2009 crisis, measured peak to trough: U.S. stocks down 51 percent, international stocks down 57, real estate trusts down 68, core bonds up 6, inflation-protected Treasuries down 2.3 and cash up 1.5.

Candidate A would lose 36.9 percent, about $223,160, well beyond the $171,169 limit. Candidate B would lose 25.6 percent, about $154,880, inside the limit with about $16,000 to spare. Candidate C would lose 16.9 percent, about $102,493.

A second test replays calendar 2022, when stocks and bonds fell together. Candidate A would have lost about 15.9 percent, B about 14.5 and C about 13.4. In a year like 2022, more bonds protect much less than in a year like 2008, which is why the crisis replay, not 2022, is the binding test for this client.

Only B stays inside the limit in the crisis and still earns the real return her plan was built on.

What this part is doingCombining the downside test with the funding test explains why the middle candidate wins rather than the safest.

Real Returns and the Funding Plan

The expected returns above are nominal. Denise's funding plan in Unit 3 assumed a real return of 3.0 percent. With inflation assumed at 2.5 percent, Candidate A's real expectation is about 3.46 percent, B's about 2.98 and C's about 2.62. Comparing the nominal figures directly with the 3.0 percent real assumption would make every candidate look comfortably sufficient, which is the false match this step avoids.

Candidate B matches the plan's assumption almost exactly, and her projected funded ratio at 65 stays at 1.29. Candidate C would lower it to about 1.26, and Candidate A would raise it to about 1.33 at the cost of a crisis loss she cannot absorb.

Why Not the Safest Mix

Choosing Candidate C by default would feel prudent, but surrendered return has a cost. Over seven years, C's lower expected return would leave Denise about $20,000 short of B's projected resources at 65, reducing the cushion that protects her against a long life or a benefit cut. C's smaller crisis loss buys safety she does not need, since B already fits inside her capacity. Markowitz (1952) framed portfolio choice as the trade between expected return and risk, and the best choice is the highest return that the binding constraint allows, not the lowest risk available.

The Recommendation

Denise should adopt Candidate B: 32 percent U.S. stocks, 13 percent developed international stocks, 5 percent real estate trusts, 30 percent core bonds, 15 percent inflation-protected Treasuries and 5 percent cash. The reason is written plainly so it can be checked later: this is the mix with the highest expected return whose crisis loss stays below her capacity limit of $171,169, and its real expected return matches her funding plan.

If her capacity rises, for example if she decides to work to 66, the limit will be recomputed and a higher stock share reconsidered. If a loss of $155,000 ever feels larger than she expected, her tolerance figure will be revisited, but the allocation will not rise above what her capacity allows.

Account Placement

The same allocation can be held across her three accounts in ways that change her after-tax result. Dammon et al. (2004) showed that investors generally gain by holding heavily taxed assets in tax-deferred accounts and tax-efficient stocks in taxable accounts.

In dollar terms, Candidate B holds $193,600 in U.S. stocks, $78,650 in international stocks, $30,250 in real estate trusts, $181,500 in core bonds, $90,750 in inflation-protected Treasuries and $30,250 in cash. The SEP-IRA, at $420,000, holds all the core bonds, inflation-protected Treasuries, real estate trusts and cash, whose income is taxed at ordinary rates, plus $87,250 of U.S. stocks. The Roth IRA, at $64,000, holds international stocks, since the account's tax-free growth suits a holding with a high expected return. The taxable account, at $121,000, holds $106,350 of U.S. stocks and $14,650 of international stocks, whose qualified dividends and foreign tax credits are used best in a taxable account.

When to Reopen the Choice

The recommendation should be revisited if any of three things happens. A higher Social Security estimate, a lower spending target or a decision to work longer would each raise her capacity and could make room for Candidate A's higher return. A sharp fall in expected bond returns would lower Candidate B's real expectation below 3.0 percent and weaken her funding. And a change in how she feels after living through a real loss with this mix would be recorded and weighed against both limits.

Review

The allocation is reviewed each year on her birthday, alongside an updated capacity calculation, and the Unit 7 glide path will set how the stock share changes as she approaches retirement.

What this part is doingFixing the review date and the next unit's role keeps the allocation tied to the plan it serves.

References

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

Grable, J., & Lytton, R. H. (1999). Financial risk tolerance revisited: The development of a risk assessment instrument. Financial Services Review, 8(3), 163-181. https://doi.org/10.1016/S1057-0810(99)00041-4

Markowitz, H. (1952). Portfolio selection. Journal of Finance, 7(1), 77-91. https://doi.org/10.1111/j.1540-6261.1952.tb01525.x

MT423 Unit 5 instructions, in plain terms

The fifth unit asks students to recommend a strategic allocation for the client, drawing on the tolerance and capacity work before it. Instructors expect the constraints set side by side and the binding one named with its figure. Candidate allocations should be described by expected return and by a downside measure expressed the same way as the loss limit, usually a dollar loss in a crisis replay. Nominal expected returns should be converted to real terms before comparison with a real funding assumption. The proposal should explain why it does not simply choose the safest mix, since surrendered return has a cost. Many sections also ask where each holding should sit across taxable and tax-advantaged accounts. The recommendation should be stated with its reason in a form that can be checked later.

How this MT423 Unit 5 example is built

The sample sets the questionnaire suggestion, the $180,000 tolerance and the $171,169 capacity side by side and names capacity as binding. Three candidates are described with their weights, expected returns and volatilities. A crisis replay using bracketed class losses converts each into a dollar loss, and a 2022 replay follows, under a highlighted line on only one candidate passing both tests. A section converts nominal returns to real ones and shows each candidate's funded ratio. Another explains, after Markowitz, why the safest mix is not chosen. The recommendation states its reason in one sentence. Account placement assigns every dollar to the SEP-IRA, Roth IRA or taxable account. A short section lists what would reopen the choice.

Reading the MT423 Unit 5 grading rubric

Strategic allocation proposals are typically graded on a named binding constraint, candidates tested in the same terms as the limit, consistent real and nominal returns and a recommendation whose reason can be checked. Allocations taken straight from a questionnaire band or an age rule skip the analysis graders look for first. Rubrics reward a downside measure in dollars, because a loss limit in dollars can only be tested that way. Credit goes to catching the false match between nominal returns and a real funding plan. Explaining the cost of the most conservative mix shows judgment. Account placement, with bonds and real estate trusts in the tax-deferred account, earns depth marks many papers miss. A candidate table and a placement table support the argument.

MT423 Unit 5 help from the desk

The most common weak proposal matches the questionnaire band to a model portfolio and stops, never testing it against the client's capacity. Another frequent error compares candidates by expected return alone, with no downside measure. Students often set a nominal expected return against a real funding assumption and conclude every mix is fine. Many default to the most conservative mix as if lower risk were always better. Account placement is often skipped, though it changes after-tax results for the same allocation. Before submitting, convert each candidate's crisis loss into dollars on the client's current balance and line them up beside her limit. The recommended mix should be the highest-returning one that stays below the line, and your text should say exactly that.

Get an MT423 Unit 5 example written to your instructions

Allocation proposals depend on constraints. Starting from the tolerance, capacity and goals in the Unit 5 case, the free first MT423 sample tests each candidate against the binding limit and recommends one mix by class, formatted to your rubric and ready within 24-48h. Sections expecting an optimizer can have that version instead. 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 5 questions, answered

How many candidate allocations should the proposal compare?

Three is common: one that satisfies the less restrictive constraint, one near the binding limit and one clearly inside it. Fewer makes the choice look assumed; many more turns the paper into a table. Each candidate needs the same measures, so the reader can see exactly where one passes and another fails.

Can the proposal use an age-based rule like 110 minus age?

As a reference point, yes, but not as the method. Rules of that kind ignore income stability, other assets and the specific loss limit the plan can absorb. Showing where the rule would land and explaining why the recommendation differs demonstrates the analysis the unit asks for, and it answers the question a grader is likely to raise anyway.

What if tolerance is lower than capacity?

Then tolerance usually binds in practice, because an allocation the client abandons in a downturn fails regardless of what the balance sheet could absorb. The proposal can note the gap and suggest revisiting it later, but the recommended mix should be one the client will actually hold through a bad year.

Where can I find a free MT423 Unit 5 sample paper?

You can read the complete MT423 Unit 5 proposal here, testing three allocations against a composite client's $171,169 capacity limit.

Why does the MT423 Unit 5 sample reject the 35 percent stock mix?

The 50 percent mix already fits inside her capacity, so the safer mix would surrender about $20,000 of projected resources for protection she does not need.