Question #39
Reading: Reading 40 Analysis of Active Portfolio Management
PDF File: Reading 40 Analysis of Active Portfolio Management.pdf
Page: 17
Status: Correct
Correct Answer: A
Question
Helen Wilde is trying to estimate the active return of Optimal fund. A comparison of Optimal's holdings and that of the benchmark are shown below: Asset Class (i) Optimal Weight (wPi) Benchmark Weight (wBi) Optimal Return E(RPi) Benchmark Return E(RBi) Industrials 30% 40% 11% 12% Financials 50% 30% 6% 5% Utilities 20% 30% 14% 12% The expected active return for Optimal is closest to:
Answer Choices:
A. -0.44%
B. – 1.40%
C. – 0.80%
Explanation
Portfolio return = RP = ∑(wPi) x E(RPi) = 9.10%
Benchmark return = RB = ∑(wBi) x E(RBi) = 9.90%
Active return = RP - RB = 9.10% – 9.90% = -0.80%