Answer: each active weight in the portfolio is multiplied by the same constant.

## Explanation **Information Ratio (IR)** is defined as: \[ IR = \frac{E(R_p - R_b)}{\sigma(R_p - R_b)} \] where: - \(E(R_p - R_b)\) is the expected active return - \(\sigma(R_p - R_b)\) is the tracking error (standard deviation of active returns) **Option C is correct**: When each active weight is multiplied by the same constant, both the numerator (expected active return) and denominator (tracking error) are scaled by the same factor, leaving the ratio unchanged. **Option A is incorrect**: Adding cash changes the portfolio's risk characteristics and typically reduces the information ratio since cash has zero active return but may affect tracking error. **Option B is incorrect**: Changing leverage affects both the active return and tracking error, but not necessarily in the same proportion, so the information ratio typically changes. The key insight is that scaling all active positions by the same constant preserves the information ratio because the portfolio's active risk-return characteristics remain proportionally the same.

Author: LeetQuiz Editorial Team