Sign up  |  Log in

Errata - Formula for "Allocation effect" Book 6 - Performance Evaluation - looks incorrect

The formula for Allocation effect on page 182 Book 6 looks incorrect. Its given as Ai = (wp - wb) Bi 


wp = weight of the sector/security on the portfolio

wb = weight of the sector/security on the benchmark

Bi = return of the sector/security on the benchmark

I think this formula should be (wp - wb) (Bi - B) 

where B = return of the benchmark 

In fact, on page 182 they use the first formula while on page 197 (same chapter) the allocation effect has been computed using the 2nd formula mentioned above. 

Any one’s seen this. 

You’ve made it this far, and you know what it takes to pass. Don’t be fooled by false promises and unrealistic claims. Schweser’s CFA® study packages give you the proven study tools and expert instruction you need to finish the job.

Yeah,I noticed it. But I think the formula on

page 182 is right. If you add the allocation effect, the     

selection effect and the interaction together, it should equal to wi*Ri-Wi*Bi.