Financial Risk Manager Part 2

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Explanation:

The contribution of the portfolio manager's asset allocation decision can be calculated using the Brinson-Hood-Beebower (BHB) model or Brinson-Fachler model. Using the BHB model, the asset allocation contribution for each asset class is calculated as: (Portfolio Weight - Benchmark Weight) × Benchmark Return.

For Equity: (58% - 50%) × 11% = 0.08 × 0.11 = 0.0088 (or 0.88%).
For Fixed Income: (42% - 50%) × 7% = -0.08 × 0.07 = -0.0056 (or -0.56%).

Total Asset Allocation Contribution = 0.88% + (-0.56%) = 0.32%. Thus, Option D is correct.

Explanation:

For Equity: (58% - 50%) × 11% = 0.08 × 0.11 = 0.0088 (or 0.88%).
For Fixed Income: (42% - 50%) × 7% = -0.08 × 0.07 = -0.0056 (or -0.56%).

Total Asset Allocation Contribution = 0.88% + (-0.56%) = 0.32%. Thus, Option D is correct.

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Question A fund of funds (FOF) manager is conducting a performance attribution analysis for a portfolio consisting of equity and fixed-income securities to evaluate the effects of the portfolio manager's asset allocation and security selection decisions. The FOF manager uses the information presented below:

Asset class Portfolio weight Benchmark weight Portfolio return Benchmark return
Equity 58% 50% 8% 11%
Fixed income 42% 50% 6% 7%

What is the contribution of the portfolio manager's asset allocation decision to the portfolio's overall excess return?

Asset class	Portfolio weight	Benchmark weight	Portfolio return	Benchmark return
Equity	58%	50%	8%	11%
Fixed income	42%	50%	6%	7%

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Last updated: July 5, 2026 at 07:29

-2.16%

-1.84%

-0.16%

0.32%