- CFA Exams
- CFA Level I Exam
- Study Session 18. Portfolio Management (1)
- Reading 52. Portfolio Risk and Return: Part I
- Subject 1. Major Return Measures

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**CFA Practice Question**

You are examining a portfolio composed of 33% money-market investments, 9.5% bonds, and 57.5% stocks. Last year, the return on the money-market investments was 4%; the return on bonds was 9%, and the return on stocks was -11%. What is the contribution of the stocks toward the portfolio weighted-average return?

A. -57.50%

B. -11.00%

C. -6.325%

**Explanation:**The portfolio weighted-average mean return is equal to the sum (as i goes from 1 to n) of w

_{i}* X

_{i}, where w

_{i}is the percentage weight in the portfolio of the ith asset and X

_{i}is the investment return of the ith asset. The contribution of any asset will equal its weight in the portfolio times its return. Here, we get 0.575 * (-0.11) = -6.325%.

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**User Contributed Comments**
5

User |
Comment |
---|---|

danlan |
Calculate the absoulte contribution and not the relative contribution. |

jml115 |
i don't get this problem. i get 4.15% = (0.33*0.04) + (0.095*0.09) + (0.575*-0.11) |

mc25456 |
What is the contribution of STOCKS toward the portfolio weighted average return? |

Shelton |
Tricky: not ask for WACC |

aakash1108 |
very tricky....i like it: This portfolio has 3 components: 1.Stock 2.Money Market and 3.Bonds.. The question clearly asks for the contribution of the STOCKS to this portfolio - which is 0.575 X (-11) = -6.325 ....isin't it a nice question. :) |