THe question was correct But ussually and their answer was there as well. But I did not get . “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” THere are two method to do this. If you go with what they ask you, you will clear find their answer. something like. 4.2/5=3.44% when you add teh small amount %tage of cash return, you will get 3.5%. Their is correct. But is was kind nonsence question. Te test writers try to make CFA like GMAT/ GRE which is a very,very , very bad trend. Because those tests do not really measure ppl knwledge in anything.
I don’t understand how the cash portoflio can have like a 60 bps effect. It clearly states that the EAFE portion had a 4.1% return and the cash portfolio had a 3%, cash portion should not have that much of a difference in the return of a portfolio. 3.8% sounds way more intuitive then 3.5%… unless you have a portfolio that’s weight like 20-30% in cash which is ridiculous.
^ under gips there are two ways to allocate cash. they specifically mentioned the strategic allocation. all you do is look at current allocation and compare to to strategic and then bring in the amount of cash that you need to get it to the strategic percentage. then you take the weighted average of the investment and the cash to get the 3.5%. this is all assuming that you even had to do that though. i think an excellent point was brought up earlier that perhaps cash was only related to US equities and none to international, which would mean it should be the original return they put in the chart for international initially.