Consider the following information regarding the performance of a money manager in a recent month. The table represents the actual return of each sector of the manager’s portfolio in column 1, the fraction of the portfolio allocated to each sector in column 2, the benchmark or neutral sector allocations in column 3, and the returns of sector indices in column 4.

Actual Return Actual Weight Benchmark Weight Index Return Equity 2% 0.70 0.60 2.5%

Bonds 1 0.20 0.30 1.2 Cash 0.5 0.10 0.10 0.5

a. What was the manager’s return in the month? What was her overperformance or underperformance?

b. What was the contribution of security selection to relative performance?

c. What was the contribution of asset allocation to relative performance?

d. Confirm that the sum of selection and allocation contributions equals her total “excess”

return relative to the bogey.

.P-96