b) Murehwa Securities case scenario Rodrick Mashanda, CFA is a Fixed income securities trader at Murehwa Securities. Mashanda has decided to pursue a contingent immunization strategy over a 3-year time horizon. He just purchased at par R10 million worth of 7%, semiannual coupon, 5 year bonds. The current rate of return for immunized strategies is 7%, and he is willing to accept a return of 8%. 2. Same case scenario As part of an attribution analysis Same Same, CFA, has accumulated the following partial data for his portfolio. Benchmark Portfolio Benchmark Portfolio sector sector sector sector weight% weight% return% Sectors return% Agricultural Capital goods Consumer durables Energy 12.55 6.52 30.22 11.24 6.45 8.99 25.36 40.65 -0.82 -3.28 1.96 0.44 -1.35 4.34 1.98 0.24 Total portfolio 1.34 0.56 For payment of performance bonus, Same prefers to use 10% return as a performance evaluation benchmark. i) Using the available data, calculate and explain the pure sector allocation value added by the Capital goods sector allocation. (6) ii) Using the available data, calculate and explain the within-sector allocation value added by the Consumer durables. (6) 3 Using the available data, calculate and explain by the allocation /selection interaction value added by the Energy sector. (6) iv) Evaluate the validity of the benchmark that Same utilizes in assessing his performance. (7) b) Murehwa Securities case scenario Rodrick Mashanda, CFA is a Fixed income securities trader at Murehwa Securities. Mashanda has decided to pursue a contingent immunization strategy over a 3-year time horizon. He just purchased at par R10 million worth of 7%, semiannual coupon, 5 year bonds. The current rate of return for immunized strategies is 7%, and he is willing to accept a return of 8%. 2. Same case scenario As part of an attribution analysis Same Same, CFA, has accumulated the following partial data for his portfolio. Benchmark Portfolio Benchmark Portfolio sector sector sector sector weight% weight% return% Sectors return% Agricultural Capital goods Consumer durables Energy 12.55 6.52 30.22 11.24 6.45 8.99 25.36 40.65 -0.82 -3.28 1.96 0.44 -1.35 4.34 1.98 0.24 Total portfolio 1.34 0.56 For payment of performance bonus, Same prefers to use 10% return as a performance evaluation benchmark. i) Using the available data, calculate and explain the pure sector allocation value added by the Capital goods sector allocation. (6) ii) Using the available data, calculate and explain the within-sector allocation value added by the Consumer durables. (6) 3 Using the available data, calculate and explain by the allocation /selection interaction value added by the Energy sector. (6) iv) Evaluate the validity of the benchmark that Same utilizes in assessing his performance. (7)
