In a particular year, Star Mutual Fund earned a return of 16% by making the following investments in two asset classes, bonds and stocks: Bonds Weight 20% Return 12% Stocks 80% 17% The return on a passive portfolio was 12% calculated as follows: Weight Return 10% 40% 15% Bonds (Shearson-Lehman Index) 60% Stocks (S&P500 Index) a. Calculate the total excess return on the managed portfolio from Star Mutual Fund. What can you say about the contribution of asset allocation across markets to the total excess return? Show all your work step by step with explanation. b. What about the security selection's contribution within asset classes to the total excess return? Show all your work step by step with explanation. We have, Portfolio return= & 16% Bogey Portfolio return = 0 6x10%. + 0.4x154. Extra return = 4% (a) Contribution = 12% asset allocation across (0.2-0.6) (10%) + (0.8-0.4) 154. market = = -41 +6% = 2% (b) contribution of of sector & Security selection within asset classes to the total excess return = (12%-10%) 0.2+ (17.-1.-15.1) 0.8 = 0.41. +1.6.1. = 2%