Ultimate access to all questions.
Answer-first summary for fast verification
Answer: 0.444
The information ratio is calculated as: $$\text{Information Ratio} = \frac{\text{Alpha}}{\text{Tracking Error}}$$ Given: - Alpha = 1% - Tracking Error = 2.25% $$\text{Information Ratio} = \frac{1}{2.25} = 0.444$$ The information ratio measures the excess return per unit of active risk taken by the fund manager. A ratio of 0.444 indicates that for every 1% of tracking error (active risk), the manager generates 0.444% of alpha (excess return).
Author: Tanishq Prabhu
A certain fund manager typically generates an alpha of 1% and a tracking error of 2.25%. Determine the information ratio.
A
0.3
B
0.5
C
2.25
D
0.444
No comments yet.