Use the information below for the next two questions. Assume you are given the f

Question

Use the information below for the next two questions.

Assume you are given the following information. Note that this is a realistic example since as it is similar to one of the students’ simulated portfolios. By the way, if you try to look up the portfolio to determine the answer then you will be wasting your time as I did change some numbers and do not note the date range.

13. What is the selection effect of information technology on the total portfolio’s alpha (outperformance)?

A. 0.30%

B. 1.20%

C. 1.50%

D. 4.50%

E. 5.00%

F. 15.00%

14. What is the interaction effect of information technology on the total portfolio’s alpha (outperformance)?

A. -3.04%

B. -0.24%

C. 0.30%

D. 0.36%

E. 1.50%

F. 6.00%

Port. Avg. Weight Port. Total Return Bench Avg. Weight Bench Total Return Total Fund 100.00% 5.00% 100.00% 4.00% Information Technology 30.00% 15.00% 24.00% 10.00%

Explanation / Answer

13) Selection effect = (Rp - Rb) x wb = (15% - 10%) x 24% = 1.20%

Hence, B is correct

14) Interaction effect = (Rp - Rb) x (wp - wb) = (15% - 10%) x (30% - 24%) = 0.30%

Hence, C is correct.

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