What would happen to the contribution of asset allocation to overall performance if the actual weights had been 75/12/13 instead of 70/7/23? Explain your result. 2) What would happen to the contribution of security selection to overall performance if the actual return on the equity portfolio had been 8.28% instead of 7.28% and the return on the bond portfolio had been .89% instead of 1.89%? Explain your result. Below is the Table of Actual Weights at 70/7/23 Performance Attribution Bogey Bogey Portfolio Benchmark Return on Portfolio Component Index Weight Index Return Equity S&P 500 0.6 5.81% 3.4860% Bonds Aggregate Index 0.3 1.45% 0.4350% Cash Money Market 0.1 0.48% 0.0480% Return on Bogey 3.9690% Actual Managed Managed Portfolio Portfolio Actual Portfolio Component Weight Return Return Equity 0.70 7.28% 5.0960% Bonds 0.07 1.89% 0.1323% Cash 0.23 0.48% 0.1104% Return on managed portfolio 5.3387% Excess Return of managed portfolio 1.3697% Performance attribution to asset allocation Actual weight Benchmark weight Excess weight Index return Contribution Equity 0.7 0.6 10% 5.81% 0.58% Bonds 0.07 0.3 -23% 1.45% -0.33% Cash 0.23 0.1 13% 0.48% 0.06% Contribution of asset allocation: 0.31% Performance attribution to security selection Portfolio performance Index performance Excess performance Portfolio weight Contribution Equity 7.28% 5.81% 1.47% 70% 1.03% Bonds 1.89% 1.45% 0.44% 7% 0.03% 1.06% Below is the Table of Actual Portfolio Weights at 75/12/13 Performance Attribution Bogey Bogey Portfolio Benchmark Return on Portfolio Component Index Weight Index Return Equity S&P 500 0.6 5.81% 3.4860% Bonds Aggregate Index 0.3 1.45% 0.4350% Cash Money Market 0.1 0.48% 0.0480% Return on Bogey 3.9690% Actual Managed Managed Portfolio Portfolio Actual Portfolio Component Weight Return Return Equity 0.75 7.28% 5.4600% Bonds 0.12 1.89% 0.2268% Cash 0.13 0.48% 0.0624% Return on managed portfolio 5.7492% Excess Return of managed portf 1.7802% Performance attribution to asset allocation Actual weight Benchmark weight Excess weight Index return Contribution Equity 0.75 0.6 15% 5.81% 0.87% Bonds 0.12 0.3 -18% 1.45% -0.26% Cash 0.13 0.1 3% 0.48% 0.01% Contribution of asset allocation: 0.62% Performance attribution to security selection Portfolio performance Index performance Excess performance Portfolio weight Contribution Equity 7.28% 5.81% 1.47% 75% 1.10% Bonds 1.89% 1.45% 0.44% 12% 0.05% 1.16%
What would happen to the contribution of asset allocation to overall performance if the actual weights had been 75/12/13 instead of 70/7/23? Explain your result. 2) What would happen to the contribution of security selection to overall performance if the actual return on the equity portfolio had been 8.28% instead of 7.28% and the return on the bond portfolio had been .89% instead of 1.89%? Explain your result. Below is the Table of Actual Weights at 70/7/23 Performance Attribution Bogey Bogey Portfolio Benchmark Return on Portfolio Component Index Weight Index Return Equity S&P 500 0.6 5.81% 3.4860% Bonds Aggregate Index 0.3 1.45% 0.4350% Cash Money Market 0.1 0.48% 0.0480% Return on Bogey 3.9690% Actual Managed Managed Portfolio Portfolio Actual Portfolio Component Weight Return Return Equity 0.70 7.28% 5.0960% Bonds 0.07 1.89% 0.1323% Cash 0.23 0.48% 0.1104% Return on managed portfolio 5.3387% Excess Return of managed portfolio 1.3697% Performance attribution to asset allocation Actual weight Benchmark weight Excess weight Index return Contribution Equity 0.7 0.6 10% 5.81% 0.58% Bonds 0.07 0.3 -23% 1.45% -0.33% Cash 0.23 0.1 13% 0.48% 0.06% Contribution of asset allocation: 0.31% Performance attribution to security selection Portfolio performance Index performance Excess performance Portfolio weight Contribution Equity 7.28% 5.81% 1.47% 70% 1.03% Bonds 1.89% 1.45% 0.44% 7% 0.03% 1.06% Below is the Table of Actual Portfolio Weights at 75/12/13 Performance Attribution Bogey Bogey Portfolio Benchmark Return on Portfolio Component Index Weight Index Return Equity S&P 500 0.6 5.81% 3.4860% Bonds Aggregate Index 0.3 1.45% 0.4350% Cash Money Market 0.1 0.48% 0.0480% Return on Bogey 3.9690% Actual Managed Managed Portfolio Portfolio Actual Portfolio Component Weight Return Return Equity 0.75 7.28% 5.4600% Bonds 0.12 1.89% 0.2268% Cash 0.13 0.48% 0.0624% Return on managed portfolio 5.7492% Excess Return of managed portf 1.7802% Performance attribution to asset allocation Actual weight Benchmark weight Excess weight Index return Contribution Equity 0.75 0.6 15% 5.81% 0.87% Bonds 0.12 0.3 -18% 1.45% -0.26% Cash 0.13 0.1 3% 0.48% 0.01% Contribution of asset allocation: 0.62% Performance attribution to security selection Portfolio performance Index performance Excess performance Portfolio weight Contribution Equity 7.28% 5.81% 1.47% 75% 1.10% Bonds 1.89% 1.45% 0.44% 12% 0.05% 1.16%
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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1) What would happen to the contribution of asset allocation to overall performance if the actual weights had been 75/12/13 instead of 70/7/23? Explain your result.
2) What would happen to the contribution of security selection to overall performance if the actual return on the equity portfolio had been 8.28% instead of 7.28% and the return on the bond portfolio had been .89% instead of 1.89%? Explain your result.
Below is the Table of Actual Weights at 70/7/23
| Performance Attribution | |||||
| Bogey | |||||
| Bogey Portfolio | Benchmark | Return on | Portfolio | ||
| Component | Index | Weight | Index | Return | |
| Equity | S&P 500 | 0.6 | 5.81% | 3.4860% | |
| Bonds | Aggregate Index | 0.3 | 1.45% | 0.4350% | |
| Cash | 0.1 | 0.48% | 0.0480% | ||
| Return on Bogey | 3.9690% | ||||
| Actual | Managed | ||||
| Managed Portfolio | Portfolio | Actual | Portfolio | ||
| Component | Weight | Return | Return | ||
| Equity | 0.70 | 7.28% | 5.0960% | ||
| Bonds | 0.07 | 1.89% | 0.1323% | ||
| Cash | 0.23 | 0.48% | 0.1104% | ||
| Return on managed portfolio | 5.3387% | ||||
| Excess Return of managed portfolio | 1.3697% | ||||
| Performance attribution to asset allocation | Actual weight | Benchmark weight | Excess weight | Index return | Contribution |
| Equity | 0.7 | 0.6 | 10% | 5.81% | 0.58% |
| Bonds | 0.07 | 0.3 | -23% | 1.45% | -0.33% |
| Cash | 0.23 | 0.1 | 13% | 0.48% | 0.06% |
| Contribution of asset allocation: | 0.31% | ||||
| Performance attribution to security selection | Portfolio performance | Index performance | Excess performance | Portfolio weight | Contribution |
| Equity | 7.28% | 5.81% | 1.47% | 70% | 1.03% |
| Bonds | 1.89% | 1.45% | 0.44% | 7% | 0.03% |
| 1.06% |
Below is the Table of Actual Portfolio Weights at 75/12/13
| Performance Attribution | |||||
| Bogey | |||||
| Bogey Portfolio | Benchmark | Return on | Portfolio | ||
| Component | Index | Weight | Index | Return | |
| Equity | S&P 500 | 0.6 | 5.81% | 3.4860% | |
| Bonds | Aggregate Index | 0.3 | 1.45% | 0.4350% | |
| Cash | Money Market | 0.1 | 0.48% | 0.0480% | |
| Return on Bogey | 3.9690% | ||||
| Actual | Managed | ||||
| Managed Portfolio | Portfolio | Actual | Portfolio | ||
| Component | Weight | Return | Return | ||
| Equity | 0.75 | 7.28% | 5.4600% | ||
| Bonds | 0.12 | 1.89% | 0.2268% | ||
| Cash | 0.13 | 0.48% | 0.0624% | ||
| Return on managed portfolio | 5.7492% | ||||
| Excess Return of managed portf | 1.7802% | ||||
| Performance attribution to asset allocation | Actual weight | Benchmark weight | Excess weight | Index return | Contribution |
| Equity | 0.75 | 0.6 | 15% | 5.81% | 0.87% |
| Bonds | 0.12 | 0.3 | -18% | 1.45% | -0.26% |
| Cash | 0.13 | 0.1 | 3% | 0.48% | 0.01% |
| Contribution of asset allocation: | 0.62% | ||||
| Performance attribution to security selection | Portfolio performance | Index performance | Excess performance | Portfolio weight | Contribution |
| Equity | 7.28% | 5.81% | 1.47% | 75% | 1.10% |
| Bonds | 1.89% | 1.45% | 0.44% | 12% | 0.05% |
| 1.16% |
Transcribed Image Text:1 Performance Attribution
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Bogey
Portfolio
Component
Equity
B
Bonds
Cash
Index
S&P 500
Barclays Index
Money Market
Managed
Portfolio
Component
Equity
Bonds
Cash
Benchmark
Weight
0.60
0.30
0.10
Return on
Index
5.8100%
1.4500%
0.4800%
Return on Bogey
Actual
Return
7.2800%
1.8900%
0.4800%
Portfolio
Weight
0.70
0.07
0.23
Return on Managed
Excess Return
E
Portfolio
Return
3.4860%
0.4350%
0.0480%
3.9690%
Portfolio
Return
5.0960%
0.1323%
0.1104%
5.3387%
1.3697%
F
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