Question #16
Reading: Reading 40 Analysis of Active Portfolio Management
PDF File: Reading 40 Analysis of Active Portfolio Management.pdf
Page: 7
Status: Correct
Correct Answer: A
Question
Susan Thomas is evaluating the holdings of Primus fund. Based on the information below, the estimated active return is closest to: Security (i) Portfolio Weight (wPi) Benchmark Weight (wBi) ReturnE (Ri) X 30% 40% 11.20% y 15% 25% 4.25% z 55% 35% 14.00% Total 100% 100%
Answer Choices:
A. 1.77%
B. 1.26%
C. 0.44%
Explanation
Portfolio return = RP = ∑(wPi) x E(Ri) = 11.70%
Benchmark return = RB = ∑(wBi) x E(Ri) = 10.44%
Active return = RP - RB = 11.70% – 10.44% = 1.26