CMA Final · Strategic Financial Management · Portfolio Performance Evaluation and Portfolio Revision
An investor holds a portfolio worth Rs 50 lakh at the start of the year. It earned dividends of Rs 2 lakh and its closing value was Rs 54 lakh, with no additions or withdrawals. Over the same year, the benchmark returned 9%. What is the portfolio's excess return over the benchmark?
Portfolio return includes both capital gain and dividends. Capital gain is Rs 4 lakh and dividends Rs 2 lakh, totalling Rs 6 lakh on an opening Rs 50 lakh, which is 12%. Subtracting the benchmark's 9% gives an excess return of 3%.
- A3.0%Correct
- B4.0%
- C-1.0%
- D1.0%
Explanation
Portfolio return = (54 - 50 + 2) / 50 = 6/50 = 12%. Excess over benchmark = 12 - 9 = 3%. Ignoring dividends gives 8% and excess of -1%, which is wrong.
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