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Financial Risk Manager Part 1

Financial Risk Manager Part 1

Explanation:

Explanation

Information Ratio Formula

Information Ratio (IR)=Portfolio Return−Benchmark ReturnTracking Error\text{Information Ratio (IR)} = \frac{\text{Portfolio Return} - \text{Benchmark Return}}{\text{Tracking Error}}Information Ratio (IR)=Tracking ErrorPortfolio Return−Benchmark Return​

Given Data

  • Portfolio return = 13.2%
  • Benchmark return = 12.3%
  • Tracking error volatility = 6.5%

Calculation

IR=13.2%−12.3%6.5%=0.9%6.5%=0.13846\text{IR} = \frac{13.2\% - 12.3\%}{6.5\%} = \frac{0.9\%}{6.5\%} = 0.13846IR=6.5%13.2%−12.3%​=6.5%0.9%​=0.13846

Result

IR≈0.139\text{IR} \approx 0.139IR≈0.139

Therefore, the correct answer is C. 0.139.

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Q-80. A portfolio has an average return over the last year of 13.2%. Its benchmark has provided an average return over the same period of 12.3%. The portfolio's standard deviation is 15.3%, its beta is 1.15, its tracking error volatility is 6.5% and its semi-standard deviation is 9.4%. Lastly, the risk-free rate is 4.5%. Calculate the portfolio's information Ratio (IR).

Exam-Like
Last updated: July 15, 2026 at 14:06
0

    A

    0.569

    11.8%

    B

    0.076

    11.8%

    C

    0.139

    64.7%

    D

    0.096

    11.8%
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