 # 2012 CFA Mock Question Help

Hi Everyone! Quick Question on 2 questions that I cannot figure out on the 2012 Morning section mock.

Question 22 - How did they come up with the number like -0.375 and 0.958. I know the formula is given but they don’t show how.

Question 23. How did they come up with the weights for the FOF (0.309) and the weight for PSMG (0.691).

Any help would be greatly appreciated! Thanks

question 23: he invests all his cash (6.25 million) in FOF and has 14 million in PSMG. weight of each is ratio of each to total of both. eg. weight of FOF: 6.25/6.25+14

Aaaah! Thanks lemiman!

Any clue on Question 22?

Question 22: Sharpe ratio for new investment (Short Assets FOF) = (.09-.02)/.12 = .5833 Sharpe ratio for existing portfolio * corr. with new investment (short assets) = [(.12-.02)/.02] * -.75 = -.375 the difference between .5833 and -.375 = .958… that is the CFAI’s way of confusing an issue. The couldn’t just say that “it is the new sharpe ratio being greater then the original sharpe ratio (times corr) by the largest amount compared to all the other Investment choices.”

Hey Thanks a bunch CFAworldwide! Greatly Appreciated! Just one clarification. Why did you divide the existing portfolio’s sharpe ratio by 0.02? I thought that the standard deviation is the denominator…but the 0.02 is the Risk Free Rate that you’re using…

Thanks again!

sorry Pioneer… that was a typo… [(.12-.02)/.20]*-.75 = -.375 The Std Dev is the denominator… in this case .20