During a particular investment period, a wealth management company held an investment portfolio that earned an average return of 13% with standard deviation of 30% and beta of 1.5. The average risk-free rate of return during this investment period was 2%. (full process) (a) Calculate the Sharpe and Treynor measures of performance evaluation for this investment portfolio. This investment portfolio is composed of the following two asset classes: Asset Class Weight Return Equity 0.80 15% Bonds 0.20 5% During this particular investment period, the information on a benchmark portfolio is given in the following table. Asset Class Weight Return Equity (S&P500 Index) 0.50 17% Bonds (Lehman Brothers Index) 0.50 5% (b) Determine whether the investment portfolio of the wealth management company performed better than the benchmark portfolio in terms of the total excess return on the investment portfolio over the benchmark portfolio. (c) How much is the contribution of asset allocation across asset classes to the total excess return of the investment portfolio held by the wealth management company? (d) How much is the contribution of security selection to the total excess return of the investment portfolio held by the wealth management company?
During a particular investment period, a wealth management company held an investment portfolio that earned an average return of 13% with standard deviation of 30% and beta of 1.5. The average risk-free
(a) Calculate the Sharpe and Treynor measures of performance evaluation for this investment portfolio.
This investment portfolio is composed of the following two asset classes:
|
Asset Class |
Weight |
Return |
|
Equity |
0.80 |
15% |
|
Bonds |
0.20 |
5% |
During this particular investment period, the information on a benchmark portfolio is given in the following table.
|
Asset Class |
Weight |
Return |
|
Equity (S&P500 Index) |
0.50 |
17% |
|
Bonds (Lehman Brothers Index) |
0.50 |
5% |
(b) Determine whether the investment portfolio of the wealth management company performed better than the benchmark portfolio in terms of the total excess return on the investment portfolio over the benchmark portfolio.
(c) How much is the contribution of asset allocation across asset classes to the total excess return of the investment portfolio held by the wealth management company?
(d) How much is the contribution of security selection to the total excess return of the investment portfolio held by the wealth management company?
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