What would happen to the contribution of asset allocation to overall performance if the actual weights had been 75/12/13 instead of 70/7/23? Explain your result. 2) What would happen to the contribution of security selection to overall performance if the actual return on the equity portfolio had been 8.28% instead of 7.28% and the return on the bond portfolio had been .89% instead of 1.89%? Explain your result. Below is the Table of Actual Weights at 70/7/23 Performance Attribution Bogey Bogey Portfolio Benchmark Return on Portfolio Component Index Weight Index Return Equity S&P 500 0.6 5.81% 3.4860% Bonds Aggregate Index 0.3 1.45% 0.4350% Cash Money Market 0.1 0.48% 0.0480% Return on Bogey 3.9690% Actual Managed Managed Portfolio Portfolio Actual Portfolio Component Weight Return Return Equity 0.70 7.28% 5.0960% Bonds 0.07 1.89% 0.1323% Cash 0.23 0.48% 0.1104% Return on managed portfolio 5.3387% Excess Return of managed portfolio 1.3697% Performance attribution to asset allocation Actual weight Benchmark weight Excess weight Index return Contribution Equity 0.7 0.6 10% 5.81% 0.58% Bonds 0.07 0.3 -23% 1.45% -0.33% Cash 0.23 0.1 13% 0.48% 0.06% Contribution of asset allocation: 0.31% Performance attribution to security selection Portfolio performance Index performance Excess performance Portfolio weight Contribution Equity 7.28% 5.81% 1.47% 70% 1.03% Bonds 1.89% 1.45% 0.44% 7% 0.03% 1.06% Below is the Table of Actual Portfolio Weights at 75/12/13 Performance Attribution Bogey Bogey Portfolio Benchmark Return on Portfolio Component Index Weight Index Return Equity S&P 500 0.6 5.81% 3.4860% Bonds Aggregate Index 0.3 1.45% 0.4350% Cash Money Market 0.1 0.48% 0.0480% Return on Bogey 3.9690% Actual Managed Managed Portfolio Portfolio Actual Portfolio Component Weight Return Return Equity 0.75 7.28% 5.4600% Bonds 0.12 1.89% 0.2268% Cash 0.13 0.48% 0.0624% Return on managed portfolio 5.7492% Excess Return of managed portf 1.7802% Performance attribution to asset allocation Actual weight Benchmark weight Excess weight Index return Contribution Equity 0.75 0.6 15% 5.81% 0.87% Bonds 0.12 0.3 -18% 1.45% -0.26% Cash 0.13 0.1 3% 0.48% 0.01% Contribution of asset allocation: 0.62% Performance attribution to security selection Portfolio performance Index performance Excess performance Portfolio weight Contribution Equity 7.28% 5.81% 1.47% 75% 1.10% Bonds 1.89% 1.45% 0.44% 12% 0.05% 1.16%

What would happen to the contribution of asset allocation to overall performance if the actual weights had been 75/12/13 instead of 70/7/23? Explain your result. 2) What would happen to the contribution of security selection to overall performance if the actual return on the equity portfolio had been 8.28% instead of 7.28% and the return on the bond portfolio had been .89% instead of 1.89%? Explain your result. Below is the Table of Actual Weights at 70/7/23 Performance Attribution Bogey Bogey Portfolio Benchmark Return on Portfolio Component Index Weight Index Return Equity S&P 500 0.6 5.81% 3.4860% Bonds Aggregate Index 0.3 1.45% 0.4350% Cash Money Market 0.1 0.48% 0.0480% Return on Bogey 3.9690% Actual Managed Managed Portfolio Portfolio Actual Portfolio Component Weight Return Return Equity 0.70 7.28% 5.0960% Bonds 0.07 1.89% 0.1323% Cash 0.23 0.48% 0.1104% Return on managed portfolio 5.3387% Excess Return of managed portfolio 1.3697% Performance attribution to asset allocation Actual weight Benchmark weight Excess weight Index return Contribution Equity 0.7 0.6 10% 5.81% 0.58% Bonds 0.07 0.3 -23% 1.45% -0.33% Cash 0.23 0.1 13% 0.48% 0.06% Contribution of asset allocation: 0.31% Performance attribution to security selection Portfolio performance Index performance Excess performance Portfolio weight Contribution Equity 7.28% 5.81% 1.47% 70% 1.03% Bonds 1.89% 1.45% 0.44% 7% 0.03% 1.06% Below is the Table of Actual Portfolio Weights at 75/12/13 Performance Attribution Bogey Bogey Portfolio Benchmark Return on Portfolio Component Index Weight Index Return Equity S&P 500 0.6 5.81% 3.4860% Bonds Aggregate Index 0.3 1.45% 0.4350% Cash Money Market 0.1 0.48% 0.0480% Return on Bogey 3.9690% Actual Managed Managed Portfolio Portfolio Actual Portfolio Component Weight Return Return Equity 0.75 7.28% 5.4600% Bonds 0.12 1.89% 0.2268% Cash 0.13 0.48% 0.0624% Return on managed portfolio 5.7492% Excess Return of managed portf 1.7802% Performance attribution to asset allocation Actual weight Benchmark weight Excess weight Index return Contribution Equity 0.75 0.6 15% 5.81% 0.87% Bonds 0.12 0.3 -18% 1.45% -0.26% Cash 0.13 0.1 3% 0.48% 0.01% Contribution of asset allocation: 0.62% Performance attribution to security selection Portfolio performance Index performance Excess performance Portfolio weight Contribution Equity 7.28% 5.81% 1.47% 75% 1.10% Bonds 1.89% 1.45% 0.44% 12% 0.05% 1.16%

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Excel Questions

1) What would happen to the contribution of asset allocation to overall performance if the actual weights had been 75/12/13 instead of 70/7/23? Explain your result.

2) What would happen to the contribution of security selection to overall performance if the actual return on the equity portfolio had been 8.28% instead of 7.28% and the return on the bond portfolio had been .89% instead of 1.89%? Explain your result.

Below is the Table of Actual Weights at 70/7/23

Performance Attribution
				Bogey
Bogey Portfolio		Benchmark	Return on	Portfolio
Component	Index	Weight	Index	Return
Equity	S&P 500	0.6	5.81%	3.4860%
Bonds	Aggregate Index	0.3	1.45%	0.4350%
Cash	Money Market	0.1	0.48%	0.0480%

			Return on Bogey	3.9690%

		Actual		Managed
Managed Portfolio		Portfolio	Actual	Portfolio
Component		Weight	Return	Return
Equity		0.70	7.28%	5.0960%
Bonds		0.07	1.89%	0.1323%
Cash		0.23	0.48%	0.1104%

		Return on managed portfolio	5.3387%

		Excess Return of managed portfolio	1.3697%

Performance attribution to asset allocation	Actual weight	Benchmark weight	Excess weight	Index return	Contribution
Equity	0.7	0.6	10%	5.81%	0.58%
Bonds	0.07	0.3	-23%	1.45%	-0.33%
Cash	0.23	0.1	13%	0.48%	0.06%
Contribution of asset allocation:				0.31%



Performance attribution to security selection	Portfolio performance	Index performance	Excess performance	Portfolio weight	Contribution
Equity	7.28%	5.81%	1.47%	70%	1.03%
Bonds	1.89%	1.45%	0.44%	7%	0.03%
					1.06%

Below is the Table of Actual Portfolio Weights at 75/12/13

Performance Attribution
				Bogey
Bogey Portfolio		Benchmark	Return on	Portfolio
Component	Index	Weight	Index	Return
Equity	S&P 500	0.6	5.81%	3.4860%
Bonds	Aggregate Index	0.3	1.45%	0.4350%
Cash	Money Market	0.1	0.48%	0.0480%

			Return on Bogey	3.9690%

		Actual		Managed
Managed Portfolio		Portfolio	Actual	Portfolio
Component		Weight	Return	Return
Equity		0.75	7.28%	5.4600%
Bonds		0.12	1.89%	0.2268%
Cash		0.13	0.48%	0.0624%

		Return on managed portfolio	5.7492%

		Excess Return of managed portf	1.7802%

Performance attribution to asset allocation	Actual weight	Benchmark weight	Excess weight	Index return	Contribution
Equity	0.75	0.6	15%	5.81%	0.87%
Bonds	0.12	0.3	-18%	1.45%	-0.26%
Cash	0.13	0.1	3%	0.48%	0.01%
Contribution of asset allocation:				0.62%



Performance attribution to security selection	Portfolio performance	Index performance	Excess performance	Portfolio weight	Contribution
Equity	7.28%	5.81%	1.47%	75%	1.10%
Bonds	1.89%	1.45%	0.44%	12%	0.05%
					1.16%

1 Performance Attribution
2
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6
8
9
10
11
12
13
14
15
16
45
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17
18
19
Bogey
Portfolio
Component
Equity
B
Bonds
Cash
Index
S&P 500
Barclays Index
Money Market
Managed
Portfolio
Component
Equity
Bonds
Cash
Benchmark
Weight
0.60
0.30
0.10
Return on
Index
5.8100%
1.4500%
0.4800%
Return on Bogey
Actual
Return
7.2800%
1.8900%
0.4800%
Portfolio
Weight
0.70
0.07
0.23
Return on Managed
Excess Return
E
Portfolio
Return
3.4860%
0.4350%
0.0480%
3.9690%
Portfolio
Return
5.0960%
0.1323%
0.1104%
5.3387%
1.3697%
F

Definition Definition Financial market that deals in securities or assets that are short-term in nature. The money market is responsible for keeping up the liquidity of the businesses and the organizations. These securities are usually held for a period of 12 months or less and are issued by institutions that require cash or funds for their short-term cash flow requirements. The money market is regulated by the federal government.

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