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Answer: 0.32%
The portfolio manager's asset allocation contribution is computed by summing the differences between the portfolio and benchmark weights of each asset class multiplied by the benchmark performance of that asset class. In this case, the calculation is as follows: Contribution from asset allocation: [(58% - 50%) * 11%] + [(42% - 50%) * 7%] = 0.32% This indicates that the asset allocation decision contributed positively to the portfolio's overall excess return. The other options provided in the question are incorrect for the following reasons: - Option A (-2.16%) represents the contribution from security selection, which is calculated by multiplying the difference in weights by the difference in returns for each asset class. - Option B (-1.84%) represents the total excess return, which is the sum of the asset allocation contribution and the security selection contribution. - Option C (-0.16%) is an incorrect calculation that does not align with the standard performance attribution methods. The correct answer is D (0.32%), which accurately reflects the positive impact of the asset allocation decision on the portfolio's excess return.
Author: LeetQuiz Editorial Team
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To better understand the impact of a portfolio manager’s choices in asset allocation on the portfolio's overall additional return, it is necessary to evaluate how different allocations between asset classes can influence performance. Asset allocation involves distributing investments among various categories like stocks, bonds, and cash, each with its own risk and return characteristics. By strategically choosing the proportion of each asset class, the portfolio manager aims to optimize the portfolio's return for a given level of risk.
Given this context, what is the effect of a portfolio manager's asset allocation decisions on the portfolio's total additional return?
A
-2.16%
B
-1.84%
C
-0.16%
D
0.32%
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