6. Consider the following performance data for two portfolio managers (A and B) and a common benchmark portfolio: BENCHMARK MANAGER A MANAGER B Return Weight Weight Weight Return Return Stock 0.5 -4.0% 0.6 -5.0% 0.3 -5.0% Bonds 0.3 -3.5 0.2 -2.5 0.4 -3.5 0.1 Cash 0.3 0.3 0.3 0.3 0.3 Evaluation of Asset Management a. Calculate (1) the overall return to the benchmark portfolio, (2) the overall return to Manager A's actual portfolio, and (3) the overall return to Manager B's actual portfo- lio. Briefly comment on whether these managers have under- or outperformed the benchmark fund. b. Using attribution analysis, calculate (1) the selection effect for Manager A, and (3) the allocation effect for Manager B. Using these numbers in conjunction with your results from part (a), comment on whether these managers have added value through their selection skills, their allocation skills, or both.
6. Consider the following performance data for two portfolio managers (A and B) and a common benchmark portfolio: BENCHMARK MANAGER A MANAGER B Return Weight Weight Weight Return Return Stock 0.5 -4.0% 0.6 -5.0% 0.3 -5.0% Bonds 0.3 -3.5 0.2 -2.5 0.4 -3.5 0.1 Cash 0.3 0.3 0.3 0.3 0.3 Evaluation of Asset Management a. Calculate (1) the overall return to the benchmark portfolio, (2) the overall return to Manager A's actual portfolio, and (3) the overall return to Manager B's actual portfo- lio. Briefly comment on whether these managers have under- or outperformed the benchmark fund. b. Using attribution analysis, calculate (1) the selection effect for Manager A, and (3) the allocation effect for Manager B. Using these numbers in conjunction with your results from part (a), comment on whether these managers have added value through their selection skills, their allocation skills, or both.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:6. Consider the following performance data for two portfolio managers (A and B) and a
common benchmark portfolio:
BENCHMARK
MANAGER A
MANAGER B
Return
Weight
Weight
Weight
Return
Return
Stock
0.5
-4.0%
0.6
-5.0%
0.3
-5.0%
Bonds
0.3
-3.5
0.2
-2.5
0.4
-3.5
0.1
Cash
0.3
0.3
0.3
0.3
0.3
Evaluation of Asset Management
a. Calculate (1) the overall return to the benchmark portfolio, (2) the overall return to
Manager A's actual portfolio, and (3) the overall return to Manager B's actual portfo-
lio. Briefly comment on whether these managers have under- or outperformed the
benchmark fund.
b. Using attribution analysis, calculate (1) the selection effect for Manager A, and (3) the
allocation effect for Manager B. Using these numbers in conjunction with your results
from part (a), comment on whether these managers have added value through their
selection skills, their allocation skills, or both.
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