The information ratio (IR) is a measure used to evaluate the performance of an investment portfolio by comparing its excess return to its tracking error. It indicates how well a portfolio manager is able to generate excess returns relative to the risk taken, as measured by the tracking error. The formula for calculating the information ratio is:

$IR = \frac{E(R_p - R_b)}{Tracking\ Error}$

Where:

• $E(R_p - R_b)$ is the average excess return of the portfolio over the benchmark.
• Tracking error is the standard deviation of the difference between the portfolio's returns and the benchmark's returns.

In the provided file content, the average excess returns and tracking errors for two funds are given as follows:

Fund 1:

• Average excess return: 0.073%
• Tracking error: 0.344%

Fund 2:

• Average excess return: 0.053%
• Tracking error: 0.341%

Using the formula, the information ratio for each fund can be calculated:

For Fund 1: $IR_{Fund1} = \frac{0.00073}{0.00344} = 0.212$

For Fund 2: $IR_{Fund2} = \frac{0.00053}{0.00341} = 0.155$

The higher the information ratio, the better the portfolio manager is at generating excess returns relative to the risk taken. In this case, Fund 1 has a higher information ratio (0.212) compared to Fund 2 (0.155), indicating that Fund 1 has performed better in terms of generating excess returns more efficiently.

Therefore, the correct answer is A: "IR for Fund 1 = 0.212, IR for Fund 2 = 0.155; Fund 1 performed better as it has a higher IR."