Calculate the expected TEV of the following actively managed portfolio given the following assumptions about asset...

 

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Calculate the expected TEV of the following actively managed portfolio given the following assumptions about asset class returns. Fixed Income Domestic Equity Intl Developed Equity Intl Emerging Equity Total Asset Class Fixed Income Domestic Equity Portfolio Weight Fixed Income Domestic Equity Intl Developed Equity Intl Emerging Equity Actively Managed Portfolio (A) 25% 1.00 -0.23 0.05 -0.13 35% 25% Intl Developed Equity Intl Emerging Equity 15% 100% Benchmark Weight Asset Class Return Volatilities Fixed Income Domestic Equity (B) 30% -0.23 1.00 0.77 0.66 30% 20% 20% 100% Asset Class Return Correlations Return Volatility 9% 18% 19% 22% Active Weight (A) - (B) -5% Intl Developed Equity 0.05 0.77 1.00 0.81 5% 5% -5% 0% Intl Emerging Equity -0.13 0.66 0.81 1.00 Calculate the expected TEV of the following actively managed portfolio given the following assumptions about asset class returns. Fixed Income Domestic Equity Intl Developed Equity Intl Emerging Equity Total Asset Class Fixed Income Domestic Equity Portfolio Weight Fixed Income Domestic Equity Intl Developed Equity Intl Emerging Equity Actively Managed Portfolio (A) 25% 1.00 -0.23 0.05 -0.13 35% 25% Intl Developed Equity Intl Emerging Equity 15% 100% Benchmark Weight Asset Class Return Volatilities Fixed Income Domestic Equity (B) 30% -0.23 1.00 0.77 0.66 30% 20% 20% 100% Asset Class Return Correlations Return Volatility 9% 18% 19% 22% Active Weight (A) - (B) -5% Intl Developed Equity 0.05 0.77 1.00 0.81 5% 5% -5% 0% Intl Emerging Equity -0.13 0.66 0.81 1.00

Answer rating: 100% (QA)

To calculate the expected Tracking Error Volatility TEV of the actively managed portfolio we can use the following formula TEV sqrtsumi1n Active Weighti2Return Volatilityi2 2sumi1n1 sumji1n Active Wei... View the full answer