The question has asked for a benchmark performance for years 1 (-3.62%) and 2 (10.83%), followed by a benchmark performance over the two years (6.82%). (ii) and (iii). It then asks for the relative performance for years 1 and 2, then the relative performance over the two years. Fund performance is 1.33% Y1 and 11.84% Y2, and 13.33% total, this gives relative returns of 4.95% and 1.01%. (iv) For the relative performance over the two years, the answers have: (1+ year 1 relative return)*(1+year 2 relative return) - 1 = 6.02% Does anyone know why it is this rather than the difference between the two year returns of the fund compared to the benchmark 13.33% - 6.82% = 6.52% ?
Hi Oliver, personally, I think either approach would generally be considered to be reasonable. The different methods of calculation are explored in a little more detail in the solution to Assignment X4.8(ii) Best wishes Gresham
