CFA Practice Question

There are 136 practice questions for this study session.

CFA Practice Question

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

What is the value added for the managed portfolio?

A. 0.45%
B. 0.58%
C. 0.75%
Correct Answer: A

Approach 1:
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%
RA = 9.75% - 9.3% = 0.45%

Approach 2:
RA = ΣΔwiRi = 0.05 x 12% + (-0.05) x 3% = 0.45%

Approach 3:
Portfolio benchmark return = 0.7 x 12% + 0.3 x 3% = 9.3%
RA = ΣΔwiRAi = 0.05 x (12% - 9.3%) - 0.05 x (9.3% - 3%) = 0.45%

User Contributed Comments 1

User Comment
challenge11 Approach 3 correction: RA = 0.05 * (12%-9.3%) - 0.05 (3%-9.3%) = 0.45%
You need to log in first to add your comment.