QUESTION ONE Jacqui Wairimu (JW) and Eva Mumbo (EM) are alumnae of BBS Finance at Strathmore University. The two girls have enjoyed professional success and both work for large investment firms in the City of Johannesburg. Both are portfolio managers in charge of emerging and frontier markets investing in equities, fixed income and real estate. They work for rival firms and like competing. The table below describes their portfolios for the year ended December 1, 2020 Asset Benchmark return Benchmark weight JW retum JW weight EM return EM weight Emerging equities 11% 0.2 9% 13% 0.15 Frontier equities -6% 0.15 -5% 0.05 1% 0.1 Emerging bonds 6% 0.25 8% 0.2 4% 0.2 Frontier bonds 9% 0.15 13% 0.2 4% 0.2 Emerging real estate 17% 10% 0.05 23% Frontier real estate 26% 0.15 16% 34% 0.2 0.3 0.1 0.15 02 Global risk-free rate Global Market Portfolio 3% 10% Asset Global portfolio beta JW standard deviation 19% 22% 8% 7% 32% Emerging equities Frontier equities Emerging bonds Frontier bonds Emerging real estate Frontier real estate EM standard deviation 21% 24% 11% 11% 34% JW active risk 16% 8% 4% 1.30 1.70 0.40 0.20 EM active risk 13% 5% 1% 9% 5% 16% 20% 0.90 0.40 40% 44% 23% 27% You are required to calculate the following for JW and EM: a) The active return (2 marks) b) The active return due to asset allocation (2 marks) c) The active return due to stock selection (2 marks) d) The total risk of portfolio if 20% is invested in the global risk-free asset? (4 marks) e) The systematic risk of the portfolio assuming 20% is invested in the risk-free asset. (3 marks) f) The Sharpe ratio (2 marks) g) The Treynor ratio (2 marks) h) The information ratio (2marks) i) Who is the better manager? (1 mark) TOTAL 20 MARKS QUESTION ONE Jacqui Wairimu (JW) and Eva Mumbo (EM) are alumnae of BBS Finance at Strathmore University. The two girls have enjoyed professional success and both work for large investment firms in the City of Johannesburg. Both are portfolio managers in charge of emerging and frontier markets investing in equities, fixed income and real estate. They work for rival firms and like competing. The table below describes their portfolios for the year ended December 1, 2020 Asset Benchmark return Benchmark weight JW retum JW weight EM return EM weight Emerging equities 11% 0.2 9% 13% 0.15 Frontier equities -6% 0.15 -5% 0.05 1% 0.1 Emerging bonds 6% 0.25 8% 0.2 4% 0.2 Frontier bonds 9% 0.15 13% 0.2 4% 0.2 Emerging real estate 17% 10% 0.05 23% Frontier real estate 26% 0.15 16% 34% 0.2 0.3 0.1 0.15 02 Global risk-free rate Global Market Portfolio 3% 10% Asset Global portfolio beta JW standard deviation 19% 22% 8% 7% 32% Emerging equities Frontier equities Emerging bonds Frontier bonds Emerging real estate Frontier real estate EM standard deviation 21% 24% 11% 11% 34% JW active risk 16% 8% 4% 1.30 1.70 0.40 0.20 EM active risk 13% 5% 1% 9% 5% 16% 20% 0.90 0.40 40% 44% 23% 27% You are required to calculate the following for JW and EM: a) The active return (2 marks) b) The active return due to asset allocation (2 marks) c) The active return due to stock selection (2 marks) d) The total risk of portfolio if 20% is invested in the global risk-free asset? (4 marks) e) The systematic risk of the portfolio assuming 20% is invested in the risk-free asset. (3 marks) f) The Sharpe ratio (2 marks) g) The Treynor ratio (2 marks) h) The information ratio (2marks) i) Who is the better manager? (1 mark) TOTAL 20 MARKS