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Answer: The volatility of active returns achieved by the manager is below 2%, therefore the manager did not breach the limit.
C is correct. Tracking error is the standard deviation of active returns (Active return is defined as the excess return over a benchmark). In this instance, the standard deviation of active returns is 1.7% and therefore the manager did not breach the limit. A, B, and D are incorrect. They use incorrect criteria for determining the tracking error.
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Given the performance summary of a fund manager for the most recent period, which includes the following metrics: average return, volatility of returns, average return in excess of the benchmark, and volatility of active returns, along with the current risk-free interest rate, what is the correct statement among the options provided?
A
The manager's average active return is below 2%, therefore the manager breached the limit.
B
The manager's average return in excess of the risk-free interest rate is below 2%, therefore the manager breached the limit.
C
The volatility of active returns achieved by the manager is below 2%, therefore the manager did not breach the limit.
D
The volatility of returns achieved by the manager is below 2%, therefore the manager did not breach the limit.
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