Arvin is an investment manager who invested 40% of the funds in stocks, 35% in bonds and 25% in money markets and earned 12% returns in stocks, 5% in bonds and 1% in money markets. The manager’s performance is evaluated again a benchmark performance with 50% weight in stocks, 30% in bonds and 20% in money markets. The benchmark returns for stock markets is 11%, 2% for bond markets and 1% for money markets. During this period the manager’s portfolio return had a standard deviation of 22% and the market portfolio return had a standard deviation of 18%, and the average risk-free rate was 2%. Please provide formulas and step by step solutions 1.) Did Prasad over- or under-perform relative to the benchmark and by how much (%)?
Arvin is an investment manager who invested 40% of the funds in stocks, 35% in bonds and 25% in
Please provide formulas and step by step solutions
1.) Did Prasad over- or under-perform relative to the benchmark and by how much (%)?
2.) What were the contributions of Prasad’s asset allocation and security selection to the manager’s relative performance?
3.) What is the value of M2 measure for Prasad’s portfolio?
Step by step
Solved in 3 steps with 8 images
