NISM Certifications · NISM-Series-XXI-A: Portfolio Management Services (PMS) Distributors · Performance Measurement and Evaluation of Portfolio Managers
A portfolio manager's portfolio earned 14% in a year. The benchmark earned 11%. The portfolio's beta relative to the benchmark is 1.0. What is the portfolio's excess return over the benchmark?
The excess return is 3 percentage points. It is found by subtracting the benchmark return of 11% from the portfolio return of 14%. A positive value means the portfolio outperformed the benchmark over the period.
- A25%
- B3%Correct
- C14%
- D-3%
Explanation
Excess return over the benchmark = portfolio return - benchmark return = 14% - 11% = 3%. Reversing the subtraction gives -3%, which would indicate underperformance.
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