A portfolio manager has the following asset allocation and returns on his portfolio. Fill in the values in Column (3). Use Table 22€“2 on page 579 as a guideline on how to proceed.

The benchmark portfolio with which he is being compared is shown below:

a. Explain why the portfolio manager under- or over performed the benchmark portfolio.
b. If cash equivalents had been reduced by the portfolio manager to 15 percent and had been invested in international equities at his indicated rate of return, would the portfolio manager have under- or over performed the benchmark portfolio?

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Portfolio Manager Portfolio Manager Portfolio Manager Asset Allocation Returns Weighted Returns Asset Class Equities: Domestic large capitalization Domestic small capitalization International Total equities 10% 13 20 25% 20 50% Fixed income 20% Domestic bonds Foreign bonds Total fixed income 7% 27% Real estate 10% Cash equivalents 20 Total portfolio 100% Benchmark Portfolio Asset Portfolio Returns Portfolio Weighted Allocation Benchmark Benchmark Returns Asset Class Equities: Domestic large capitalization Domestic small capitalization International Total equities 30% 25 17 7290 9% 12 18 2.70% 3.00 3.06 8.76% Fixed income: 13% 0.78% 0.42 1.20% 0.27 0.24 10.47% Domestic bonds Foreign bonds Total fixed income 6% 19% Real estate 990 Cash equivalents 4 Total portfolio 100%