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Explanation:
The Information Ratio measures a portfolio's returns above the returns of a benchmark, divided by the volatility of those returns (the tracking error). Formula: Where:
Q.12 You have been given the following information regarding a portfolio:
| Return on the portfolio | 12% |
|---|---|
| Return on the market | 8% |
| Return on benchmark | 9% |
| Beta of the portfolio | 1.1 |
| Tracking error of the portfolio | 10% |
| Standard deviation of the portfolio | 15% |
Which of the following is closest to the information ratio of the portfolio?
A
0.3
B
0.2
C
0.4
D
0.5
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