Question

Amazing Manager Actual Returns: Equity = 12%; Bonds = 5.5%; Cash = 1.5%

Amazing Manager Actual Weight: Equity = 80%; Bonds = 15%; Cash = 5%

Benchmark Returns: Equity = 11.5%; Bonds = 6.75%; Cash 1.60%

Benchmark Weights: Equity = 60%; Bonds = 30%; Cash = 10%.

What was the contribution of asset allocation to relative performance?

1)	It's impossible to determine

2)

1.415%

3)

1.2075%

4)

2.375%

Answer 1

	actual return	benchmark return	difference in contribution	actual weights	benchmark weights	difference in contribution
EQUITY	12%	11.5%	0.5%	80%	60%	20%
BOND	5.5%	6.75%	(1.25)%	15%	30%	(15)%
CASH	1.5%	1.60%	(0.10)%	5%	10%	(5)%

Actual return composite = (12*80%)+(5.5*15%)+(1.5*5%)

=10.5%

benchmark return composite=(11.5*60%)+(6.75*30%)+(1.60*10%)

=9.085%

The difference in the contribution with respect to the actual and benchmark weights and returns shall be 10.5-9.085

=1.415%.

So, the correct answer shall be Option B