Answer:
A. Outperforming the benchmark
Explanation:
Calculation to determine what the manager's portfolio
First step is to calculate the Treasury bill, bond-equivalent yield for U.S.
Using this formula
Treasury bill
=(Face value − Market value) / Market value × 365 / 90
Let plug in the formula
Treasury bill= ($1,000,000 − 990,390) / 990,390 × 365 / 90
Treasury bill=0.0097 × 0.04056
Treasury bill= 3.93%.
Second step is to calculate The total market value of the portfolio
Total market value portfolio=$990,390 + $100,000 + $200,000
Total market value portfolio= $1,290,390
Now let calculate the manager's portfolio
Manager's portfolio=3.93% ($990,390 / $1,290,390) + 4.34% ($100,000 / $1,290,390) + 4.84% ($200,000 / $1,290,390)
Manager's portfolio=3.93%(76.75%)+4.34%(7.75%)+4.84%(15.50%)
Manager's portfolio=0.0410*100
Manager's portfolio= 4.10%
Therefore Based on the above calculation the manager's portfolio is 4.10% OUTPERFORMING THE BENCHMARK because the manager's portfolio of 4.10% is higher than bond-equivalent yield benchmark portfolio of 4.0%.
