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(a)
To calculate:
The total value added arrived due to the decisions taken by all the managers.
Introduction:
The total value added is computed by calculating excess (deficit) return ascertained by return as per manager's weights over the return as per MSCI weights.
Answer to Problem 12PS
The total value added is
Explanation of Solution
Given Information:
Results for a given month are in the following table:
| Country | Weights (MSCI) | Weights (Manager's) | Manager's return in Country | Return of stock index for that Country |
| U.K. | ||||
| Japan | ||||
| U.S. | ||||
| Germany |
The formula for total value added is:
Now, Return as per manager's weight is:
Return as per MSCI weight is:
Thus, as per the above calculation, the total value added for all managers' decision is:
(b)
To calculate:
The value added arrived due to the decisions taken by her country allocations.
Introduction:
The value added by allocation of country decision is computed by calculating excess (deficit) weight of manager's portfolio over the portfolio of MSCI and get it multiplied with MSCI return.
Answer to Problem 12PS
The value added is
Explanation of Solution
Given Information:
Results for a given month are in the following table:
| Country | Weights (MSCI) | Weights (Manager's) | Manager's return in Country | Return of stock index for that Country |
| U.K. | ||||
| Japan | ||||
| U.S. | ||||
| Germany |
The following table is showing computation of value added:
Thus, the value added for country allocation is
(c)
To calculate:
The value added arrived due to the ability of the stock selection within the country.
Introduction:
The value added by ability of stock selection is computed by calculating excess (deficit) return of manager's return over the return of MSCI and get it multiplied with weights of manager's portfolio.
Answer to Problem 12PS
The value added is
Explanation of Solution
Given Information:
Results for a given month are in the following table:
| Country | Weights (MSCI) | Weights (Manager's) | Manager's return in Country | Return of stock index for that Country |
| U.K. | ||||
| Japan | ||||
| U.S. | ||||
| Germany |
The following table is showing computation of value added:
Thus, the value added for country allocation is
(d)
To determine:
The value added arrived due to the decisions taken by her country allocations and ability of the stock selection within the country is equal, under or over performance with the total value added computed on all manager's decision.
Introduction:
The total value added is computed by calculating excess (deficit) return ascertained by return as per manager's weights over the return as per MSCI weights
The value added by allocation of country decision is computed by calculating excess (deficit) weight of manager's portfolio over the portfolio of MSCI and get it multiplied with MSCI return
The value added by ability of stock selection is computed by calculating excess (deficit) return of manager's return over the return of MSCI and get it multiplied with weights of manager's portfolio.
Answer to Problem 12PS
The total of value added of country allocation decision and stock selection is equal to total value added.
Explanation of Solution
The total of value added of country allocation decision and stock selection is equal to total value added is confirmed by as follows:
Thus, the contributions of both value added is confirmed to be equal to total value added.
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Chapter 18 Solutions
ESSENTIALS OF INVESTMENTS>LL<+CONNECT
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