I knew how to calculate but when I went back to read the question, it asked for the return for the international equities. When reading the question it stated that cash was only being managed by the US managers therefore cash would only have to be calculated for the US equities, therefore the return for international equities ( no cash) would be the return given of 4.1 % which coincides with the LOS of the CFAI which did not need us to know how to calculate cash Carve outs.
LOS 49J " State the requirements and recommendations of the GIPS standards for asset class segments carved out of multi-class portfolios
So what are you saying, the answer was 4.1%?
I agree that it was 4.1%. Anyone else agree with this or have confirmation on the solution? I think the numbers were 2.2% US equity return and 4.1% international equity return and the total cash return was 2.1%? 95% target allocation to US equities and 5% target allocation to international equities, right? What is the other answering people are saying and how did they do it?
I’m not saying it was 4.1% I just wonder what IH8FSA tries to tell us here.
Well I was thinking it was 4.1% for a different reason. Do you know how the numbers worked out to get 3.5% or 3.8% - i think those are the answers people are putting out there…
Intl return – was 4% or something Was 5% of the total assets so – Cash return was .3% so – 5% * .3 + 95% * 4% (orsomething like that). = 3.something for me.
95% of 4.1 = 3.9 which is more than answer B (3.8) and a lot more than answer A (3.5) which is claimed to be the correct one. I couldn’t figure out this one so I’m not trying to convince anyone of the answer here but I’d be interested to know how to calculate these returns. I’m responding to IH8FSA because it’s interesting. I do remember that cash was about 5%, intl equity 6% and the other one 89%. Intl equity did 4.1% so it’s indeed strange that the carve out return including cash (0.3% return) would reduce the end return to 3.5. If someone can help with GIPS knowledge that would help. Not someone to defend his own answer out of uncertainty, trying to sleep better… we have enough of that here already.
I got the the 4.1% BUT I am sure I was wrong because I verify that I messed up big time. I read the problem in the book during break, I still messed up. I am very mad because of retention rate was so low for that particular question. Leaving the room, I feel that I pass, now i question that and have plenty of doubt.
Im saying that no where in the los did it ask us to calculate carve out returns. 4.1% was given in the vignette as the international return and it stated that cash was only managed by the us managers ( i.e us equity portflio) therefore why would we allocate cash to the international segment if the international managers do not have cash balances >? I could be totally wrong and my conclusion can suffer from some serious back-fill bias but how could we be expected to calculate something that isnt a required calc in any of the los’s ?
i don’t really know if i am right with this question, but i think that correct answer is 3.85 (or something like that). as i understand this question you allocate cash according to strategic allocation which is 95% us equities and 5% international equities (correct me if i’m wrong), so you allocate 5% of cash to int equities and 95% to us equities according to strategic allocation. then it’s just simple calculation of weighted average returns from int equities and cash: weight of cash*cash return+weight of int equities*return on int equities
Butthe vignette said that only the US managers had cash balances, so why should we negatively affect the international equty segment with cash returns if they never held cash balances >?
I did a weighted average too and reached 3.84 which was close enough to 3.8 (i think the asnwer in the exam) but still not sure…
IH8FSA Wrote: ------------------------------------------------------- > Butthe vignette said that only the US managers had > cash balances, so why should we negatively affect > the international equty segment with cash returns > if they never held cash balances >? because cash should be allocated according to strategic asset allocation and not based on what is actually held in portfolio. at least that is how I understand it.
I remember the international return - without cash - being 4.1%, so how could the return be lower? I understand that using weighted average return could make it lower on an averaged basis, but it also only had 5% target allocation and the return to cash was ~2%…so it would be miniscual at best…
chache03 Wrote: ------------------------------------------------------- > I remember the international return - without cash > - being 4.1%, so how could the return be lower? I > understand that using weighted average return > could make it lower on an averaged basis, but it > also only had 5% target allocation and the return > to cash was ~2%…so it would be miniscual at > best… that’s what I thought as well (I marked 4.1% first), but then I calculated this as detailed in my first post and got 3.85%.
"as i understand this question you allocate cash according to strategic allocation which is 95% us equities and 5% international equities (correct me if i’m wrong), so you allocate 5% of cash to int equities and 95% to us equities according to strategic allocation. " That’s not how you calculate it. You don’t allocate the cash according to the original strategic asset allocation. You allocate the cash to make the initial allocation true. So for example, if an asset class was supposed to represent 95% of a portfolio, and it only accounts for 94%, you DO NOT give 95% of the cash to this class. You give only enough cash to make the total value of the class 95%.
Because you have to take the weighted average between the cash and the equity part. And the return on the cash being lower drags it down to 3.8 from 4.1.
chache03 Wrote: ------------------------------------------------------- > Well I was thinking it was 4.1% for a different > reason. Do you know how the numbers worked out to > get 3.5% or 3.8% - i think those are the answers > people are putting out there… This is how is got 3.50 (if the inputs are correct) intl 4.2mm 4.2% of total 4.10% return 5% strategic cash 0.30% return Total 100mm 100,000,000x(.05-.042)=800,000 [((4,200,000/(800,000+4,200,000))*.041)+((800,000/(800,000+4,200,000))*.003)] =3.492
got 3.84 too doing the weighted average - only because i had no idea what else it could be People who got 3.5 seemed to know what they were talking about