Question

The table below represents the breakdown of the actual returns for a pension fund during a...

The table below represents the breakdown of the actual returns for a pension fund during a given quarter. The table also contains the benchmark weights and returns against which the pension fund is measured.

Fund Fund Benchmark Benchmark
Weight Return Weight Return
Equity 0.65 3.4% 0.60 3.3%
Bonds 0.30 1.5% 0.35 1.6%
Cash 0.05 0.75% 0.05 0.75%

Calculate the contribution of asset allocation to the Fund's outperformance (or underperformance) relative to the Benchmark. The contribution from asset allocation may be positive or negative.

Homework Answers

Answer #1

Let the weight of equity in fund = w1 = 0.65

weight of bonds in fund = w2 = 0.30

weight of cash in fund = w3 = 0.05

Let the weight of equity in benchmark = b1 = 0.60

weight of bonds in benchmark = b2 = 0.35

weight of cash in benchmark = b3 = 0.05

Let the return of equity in benchmark = R1 = 3.3%

return of bonds in benchmark = R2 = 1.6%

return of cash in benchmark = R3 = 0.75%

contribution of security selection = [ (w1-b1)*R1] +[ (w2-b2)*R2] + [ (w3-b3)*R3] = [ (0.65-0.60)*3.3] +[ (0.30-0.35)*1.6] + [ (0.05-0.05)*R3] = 0.165 -0.08 + 0 = 0.085%

Since this contribution is positive, the fund outperformed relative to benchmark

Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
The table below represents the breakdown of the actual returns for a pension fund during a...
The table below represents the breakdown of the actual returns for a pension fund during a given quarter. The table also contains the benchmark weights and returns against which the pension fund is measured. Fund Fund Benchmark Benchmark Weight Return Weight Return Equity 0.65 4.1% 0.60 3.3% Bonds 0.30 1.7% 0.35 2.6% Cash 0.05 0.75% 0.05 0.75% Calculate the contribution of asset allocation to the Fund's outperformance (or underperformance) relative to the Benchmark. The contribution from asset allocation may be...
The table below represents the breakdown of the actual returns for a pension fund during a...
The table below represents the breakdown of the actual returns for a pension fund during a given quarter. The table also contains the benchmark weights and returns against which the pension fund is measured. Fund Fund Benchmark Benchmark Weight Return Weight Return Equity 0.65 4.5% 0.60 4.9% Bonds 0.30 2.4% 0.35 2.6% Cash 0.05 0.75% 0.05 0.75% Calculate the contribution of security selection to the Fund's outperformance (or underperformance) relative to the Benchmark. The contribution from security selection may be...
Consider the following information regarding the performance of a money manager in a recent month. The...
Consider the following information regarding the performance of a money manager in a recent month. The table presents the actual return of each sector of the manager’s portfolio in column (1), the fraction of the portfolio allocated to each sector in column (2), the benchmark or neutral sector allocations in column (3), and the returns of sector indexes in column (4). (1) Actual Return (2) Actual Weight (3) Benchmark Weight (4) Index Return Equity 2.0% 0.70 0.60 2.5% (S&P 500)...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT