The manager of Quantitative International Fund uses EAFE as a benchmark. Last year's performance for the fund and the benchmark were as follows:EuropeAustraliaFar EastMultiple Choice1.00%-1.00%Calculate Quantitative's stock selection return contribution.3.00%EAFE's Weight0.25%0.300.100.60EAFE's Return10%5%15%Currency Selection E₁ / E₂ -110%-10%30%Manager's Weight0.250.250.50Manager's Return9%8%16%

We can determine the stock performance attributed to stock selection using the formula below:

Answered: Calculate Quantitative's stock…

Business

Finance

Calculate Quantitative's stock selection return contribution.

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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Concept explainers

Risk and return

Before understanding the concept of Risk and Return in Financial Management, understanding the two-concept Risk and return individually is necessary.

Capital Asset Pricing Model

Capital asset pricing model, also known as CAPM, shows the relationship between the expected return of the investment and the market at risk. This concept is basically used particularly in the case of stocks or shares. It is also used across finance for pricing assets that have higher risk identity and for evaluating the expected returns for the assets given the risk of those assets and also the cost of capital.

Question

The manager of Quantitative International Fund uses EAFE as a benchmark. Last year's performance for the fund and the benchmark were as follows:
Europe
Australia
Far East
Multiple Choice
1.00%
-1.00%
Calculate Quantitative's stock selection return contribution.
3.00%
EAFE's Weight
0.25%
0.30
0.10
0.60
EAFE's Return
10%
5%
15%
Currency Selection E₁ / E₂ -1
10%
-10%
30%
Manager's Weight
0.25
0.25
0.50
Manager's Return
9%
8%
16%

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