Question

In a particular year, Wiseguys Mutual Fund earned a return of 15% by making the following investments in the following asset classes

Asset Class	Weight	Return
Bonds Stocks	10% 90%	6% 16%

           The return on a benchmark portfolio was 11%, calculated as follows:

Asset Class	Weight	Return
Bonds (Lehman Index) Stocks (S&P 500 index)	40% 60%	5% 15%

The contribution of security selection was

	A.	5%
	B.	4%
	C.	3%
	D.	1%

Answer 1

Answer :- (c) 3%

Calculation :-

Contribution of security selection is difference of asset class weight with security selection.

Asset Class	Mutual fund weight	Benchmark weight	Excess/Deficient MF weight from benchmark weight	Excess/ Deficient return of asset class from benchmark return	Contribution of security selection ( Excess/Deficient MF weight * Excess/Deficient return)
Equity	0.90	0.60	0.90 - 0.60 = 0.30	16% - 11% = 5%	0.30 * 5% = 1.50%
Bind	0.10	0.40	0.10 - 0.40 = - 0.30	6% - 11% = - 5%	- 0.30 * -5% = 1.50%

Total.

3.00%