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301, April 2004 Q7

G

Gareth

Member
This comes from ASSET April 2004, Q4.

The solution works out quarterly performance figures for:

a) Benchmark allocation and benchmark assets to be:

Q Return (%)
1 2.4
2 -6.695
3 2.888
4 3.063

b) Actual allocation and actual assets to be:

Q Return (%)
1 -7.083
2 -1.544
3 4.68
4 31.94

This gives difference actual - benchmark as:

Q Return (%)
1 -9.483
2 5.16
3 1.79
4 28.88

Now it states "adding together the quarterly out performances gives an overall relative out performances over the year of 26.3%".

I am suspicious of this, how can you just add up the quarterly returns? Surely it should have been doing (1 + diff1) x (1 + diff2) x ... x (1 + diffn) - 1??? (as this is basically a TWRR)

This is materially different to the stated answer (would give 24.9%).

What do you think?
 
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