Question: In a particular year, Big Mutual Fund earned a return of 1% by making the following investments in asset classes: Asset class Weight % Return

In a particular year, Big Mutual Fund earned a return of 1% by making the following investments in asset classes:

Asset class Weight % Return
Bonds 20 5
Stocks 80 0

The return on a bogey portfolio was 2%, calculated from the following information.

Index Weight % Return %
Bond Index 50 5
Stock Index 50 -1

Consider the following statements.

I. The contribution of asset allocation across markets to the Big Mutual Fund's total excess return was 1.80%.

II. The contribution of selection within markets to the Big Mutual Fund's total excess return was -0.80%.

Which of the following is correct?

a.

Statement I is incorrect, Statement II is incorrect.

b.

Statements I and II are both correct.

c.

Statements I and II are both incorrect.

d.

Statement I is correct, Statement II is incorrect.

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