Explanation:
The information ratio = (Expected return of the portfolio−Expected return of the benchmark)Tracking error\frac{(\text{Expected return of the portfolio} - \text{Expected return of the benchmark})}{\text{Tracking error}}Tracking error(Expected return of the portfolio−Expected return of the benchmark) = AlphaTracking error\frac{\text{Alpha}}{\text{Tracking error}}Tracking errorAlpha = 12.25\frac{1}{2.25}2.251 = 0.444
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Q.213 A certain fund manager typically generates an alpha of 1% and a tracking error of 2.25%. Determine the information ratio.
A
0.3
B
0.5
C
2.25
D
0.444
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