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.