Am I correct in assuming that if there are any cash flows during the period in question that we can’t figure out rates of return or value increases for ANY of the levels?
that sounds shaky…why do you say that?
All they’re saying in regards to net contributions, is that you assume they are earning a 0 return. Just adding money to the portfolio will increase your account value, but won’t give you any return. Maybe it would help to think of it in similar terms as performance calculation, where you remove the cash flow amount from the change in market value, to exclude any effect it would have on the return.
If you look at the return numbers vs and the value metrics for both the example in schweser and the CFAI text, you can’t just take the starting number and multiply by (1+return).
hmm…don’t have my books w/ me at work. would it work if return was 0, so you just x’d it by 1? any change would be due to contributions.
ng30, you are answering a different question than I am asking. I will post the whole problem in a little bit to show you what I mean…
Okay. Schweser example p 194 (Caveat: I know schweser says it is unlikely that we will have to do calculation on Macro, I am not trying to memorize calculations, but understand the underlying concepts) ***********Fund Value******Incremental % Rtn Contr****Incremental Value Cont Beg Value ----447,406,572-------- N/A---------------------------------- N/A Net Cont -----449.686,572---------0.00%------------------------------2,280,000 RF Asset -----451,067,710---------0.30%------------------------------1,381,138 Asset Cat------466,122,089--------3.33%------------------------------15,054,379 There is a note that says the increment of 1,381,138 CAN NOT be replicated by multiplying $449,686,572 by 0.30% as the net $2,280,000 contribution was NOT a single, start of the month cash flow. My question is as follows: Doesn’t that mean that we can’t calculate ANY of the remaining levels if only given the incremental return contribution? For example, if I take the next level (asset category). I appears that I also can’t take 451,067,710 (1.0333)= 466,088,264 as this is not the correct answer (which is 466,122,089). It is my understanding that since we are using an INCREMENTAL return we are still including the CF error embedded in the Risk Free Asset level. In order to be able to solve this we would need to know all the cash flows, no?
mwvt9, you are right to say that we can’t cal the next level of the performance attribution (risk free return) unless we are told of the time of the net contributions to the funds or unless we assume it begin at the start of the evaluation period. But I think the point of this example is that we are able to decomposed the total rerturn of 3.96% and from there we can see the bulk of the return can be attributed to allocating the asset classes in the same proportion as the benchmark. I read the LOS that it did not require us to cal the incremental value contribution or even the incremental % return contribution.
Thanks for the help pmoonoi. I read the LOS the same way, just wanted some clarification.