Continue with the previous question. Consider the following benchmark and managed portfolio.

Which asset class contributed more to the active return?

A. Stocks
B. Bonds
C. The contributions of stocks and bonds were equal.

Correct Answer: B

The return on the managed portfolio: 0.75 x 12% + 0.25 x 3% = 9.75%
The return on the benchmark: 0.70 x 12% + 0.3 x 3% = 9.3%
Contribution from stocks: 0.05 x (12% - 9.3%) = 0.135%
Contribution from bonds: -0.05 x (3% - 9.3%) = 0.315%