CFA Practice Question

There are 136 practice questions for this study session.

CFA Practice Question

Consider the following benchmark and managed portfolio that includes allocations to individual regions' equity markets.

Which region's equity markets contributed the most to the portfolio's active return?
A. North America
B. Europe
C. Asia Pacific
Explanation: The return on the benchmark: 0.40 x 15% + 0.3 x 12% + 0.3 x 18% = 15%
North America's contribution: 0.05 x (15% - 15%) = 0%
Europe's contribution: -0.05 x (12% - 15%) = 0.15%
Asia Pacific's contribution: 0 x (18% - 15%) = 0%
The return on the managed portfolio: 0.45 x 15% + 0.25 x 12% + 0.3 x 18% = 15.15%
Active return = 15.15% - 15% = 0.15%

User Contributed Comments 4

User Comment
daverco I don't see how this makes sense. How can underweighting a smaller return component at a lower proportion of total return contribute more than an overweight a greater return component (of equal magnitude; five points) at a greater proportion of total return?
Dabuya @daverco: if you can prove the calculation is wrong?
LyncKidd By being overweight in NA, they added 0.75% to the return. By being underweight Europe, their returns were decreased by 0.60%. Net 15bps. That's the way I thought about it, but I am wrong.
jimmyvo It makes sense:
Benchmark portfolio return: 15%
Managed portfolio return: 15.15%

Active return: 0.15%
Benchmark + active = 15.15% managed portfolio
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