For question 12, I’ve went through the internet everywhere searching but I can’t find a good answer why for security selection they are adding SELECTION + INTERACTION.
It’s usually just SELECTION but why for this question is it both?
In BHB, selection is selection + interaction effect. There are two formulas.
Thanks but that doesn’t make sense.
The passage explicitly states based on the Brinson Fahler method. It’s not the BHB model.
That s something CFAI should clarify. It is not necessarily an error. The difference between BHB and BF lies in allocation. In addition, in instances, the curriculum make distinction between selection and interaction and at times does not.
Use selection + interaction effect if the problem makes reference to interaction as well in some form. Otherwise, use weight i* Ri-Rb.
That’s the thing. There is no reference to interaction. The question explicitly asks for the security selection.
I understand differences between allocation use between the BHB and BF model. This is security selection here for question 12, and this makes little sense.
Then don’t seperate interaction and selection? Did the answer seperate interaction effect?
Security selection = Selection + Interaction
That’s how they solve it. It’s not BHB. It’s BF. They make no reference to interaction and this is why the confusion.
If you take a look at the question, you’ll understand.
Okay