Asked by
Kenneth Reina
on Dec 08, 2024
Verified
In a particular year, Hoosier Mutual Fund earned a return of 1% by making the following investments in asset classes: Weight Return Bonds 20%5% Stocks 80%0%\begin{array}{cc}& \text { Weight } & \text { Return }\\ \text { Bonds } &20\%&5\%\\ \text { Stocks } &80\%&0\%\\\end{array} Bonds Stocks Weight 20%80% Return 5%0%
The return on a bogey portfolio was 2%, calculated from the following information.
Weight Return Bonds (Lehman Brother Index) 50%5% Stacks (S&P 500 Index) 50%−1%\begin{array}{cc}& \text { Weight } & \text { Return }\\ \text { Bonds (Lehman Brother Index) } &50\%&5\%\\ \text { Stacks (S\&P 500 Index) } &50\%&-1\%\\\end{array} Bonds (Lehman Brother Index) Stacks (S&P 500 Index) Weight 50%50% Return 5%−1%
The contribution of selection within markets to the Hoosier Fund's total abnormal return was
A) 1.80%.
B) 1.00%
C) 0.80%.
D) 1.00%.
Selection Within Markets
The strategy of selecting specific securities for investment within a particular market or sector to optimize returns.
Abnormal Return
Abnormal return is the difference between the actual return of a security and its expected return, based on risk and market performance, indicating performance indicative of events or conditions unique to that security.
Bonds
A type of fixed-income investment where an investor loans money to an entity (corporate or governmental) which borrows the funds for a defined period at a variable or fixed interest rate.
- Understand the impact of asset allocation and selection within markets on the total abnormal return of an investment.
- Analyze the contribution of asset allocation and security selection to fund performance.
Verified Answer
TS
Learning Objectives
- Understand the impact of asset allocation and selection within markets on the total abnormal return of an investment.
- Analyze the contribution of asset allocation and security selection to fund performance.