Question
Arvin is an investment manager who invested 40% of the funds in stocks, 35% in bonds and 25% in money markets and earned 12% returns
Arvin is an investment manager who invested 40% of the funds in stocks, 35% in bonds and 25% in money markets and earned 12% returns in stocks, 5% in bonds and 1% in money markets. The managers performance is evaluated again a benchmark performance with 50% weight in stocks, 30% in bonds and 20% in money markets. The benchmark returns for stock markets is 11%, 2% for bond markets and 1% for money markets. During this period the managers portfolio return had a standard deviation of 22% and the market portfolio return had a standard deviation of 18%, and the average risk-free rate was 2%. Please provide formulas and step by step solutions 1.) Did Prasad over- or under-perform relative to the benchmark and by how much (%)? 2.) What were the contributions of Prasads asset allocation and security selection to the managers relative performance? 3.) What is the value of M2 measure for Prasads portfolio?
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