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Explanation:
Information Ratio:
The portfolio's alpha is divided by the portfolio's nonsystematic risk (tracking error) to compute the information ratio. It is a measure of the abnormal return per unit of risk, which could be diversified away in principle by holding a market index portfolio.
Q.3178 Samuel Badree is managing a hedge fund at Bumzee Investments. The hedge fund had a return of 13.3%, while its benchmark index, had a return of 8.9%. Over the same time period, the fund's volatility was 16.3%, while the index's volatility was 9.8%. Assuming that the fund's tracking error was 1.34%, and that the risk-free rate is 5.7%, what is the information ratio for this fund?
A
3.3
B
0.077
C
0.632
D
1.051
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