Hi all, I understand the concept of active security returns, but I’m having trouble with part of the answer to practice problem #2 in this reading.
In the third part of the answer it shows how to calculate the active portfolio return from the active weights multiplied by the active security returns. I can’t figure out how the active security returns are calculated from the information given. In the answer to the problem they give the active security returns as 2%, 3%, 0%, -4% and -2%. How are those numbers calculated?
It’s not in the official errata (https://www.cfainstitute.org/Eratta/2016_level_II_errata.pdf), but perhaps they changed it. In the online (VitalSource) version, it shows the correct returns for a (correct) answer of 0.9%. You should get 12.9% for the portfolio return and 12.0% for the benchmark return. The alternative method should use the same returns and use the deltas (portfolio weight – benchmark weight) as the weights.