Answer: remain unchanged.

According to the fundamental law of active management: IR = IC × √BR × TC Where: - IR = Information Ratio - IC = Information Coefficient - BR = Breadth - TC = Transfer Coefficient Expected active return = IR × Active Risk Given: - Breadth increases by factor of 4 → √BR increases by factor of 2 (since √4 = 2) - Active risk decreases by factor of 4 - All else equal (IC and TC unchanged) IR_new = IC × (2 × √BR_old) × TC = 2 × IR_old Expected active return_new = IR_new × (Active Risk_old / 4) = (2 × IR_old) × (Active Risk_old / 4) = 0.5 × (IR_old × Active Risk_old) Therefore, the expected active return would remain unchanged.

Author: LeetQuiz Editorial Team