Calculating Active Security Returns, Reading 54, Practice Problem 2

CFA Level II Portfolio Management
#1

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? Thanks!

#2

I don’t have book in front of me, but normally active return = return of portoflio - benchmark return. If you have more details happy to attempt to help.

#3

I was just searching for an answer to this question and managed to work it out as I was typing.

Using stock 1 as an example, the active return is the 2016 return % of 14 minus the total benchmark return of 12% which is the sum of the individual benchmark weights x individual 2016 return figures. Stock 2 is 15 minus 12 and so on.