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Answer: 0.138
## Explanation The Information Ratio (IR) is calculated as: \[ IR = \frac{\text{Portfolio Return} - \text{Benchmark Return}}{\text{Tracking Error}} \] Given: - Portfolio Return = 13.2% - Benchmark Return = 12.3% - Tracking Error = 6.5% \[ IR = \frac{13.2\% - 12.3\%}{6.5\%} = \frac{0.9\%}{6.5\%} = 0.1385 \] Rounded to three decimal places, this is **0.138**. **Why other options are incorrect:** - **A (0.569)**: This would be the Sharpe ratio calculation using portfolio return and standard deviation - **B (0.076)**: This appears to be using the wrong denominator or incorrect calculation - **D (0.096)**: This might be using beta or other risk measures incorrectly The Information Ratio specifically measures excess return relative to the benchmark per unit of tracking error (active risk), which is exactly what we calculated here.
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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).
A
0.569
B
0.076
C
0.138
D
0.096
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