Correct Answer: B

Explanation: The Information Ratio (IR) is calculated as the expected active return divided by the tracking error (standard deviation of active returns). Active return ($R_A$) for each year = Portfolio return ($R_P$) - Benchmark return ($R_B$).

Let's calculate the active returns:

• Year 1: $0.072 - 0.070 = 0.002$
• Year 2: $0.052 - 0.054 = -0.002$
• Year 3: $0.052 - 0.047 = 0.005$
• Year 4: $0.060 - 0.060 = 0.000$
• Year 5: $0.048 - 0.033 = 0.015$

Mean Active Return ($\bar{R}_A$) = $(0.002 - 0.002 + 0.005 + 0.000 + 0.015) / 5 = 0.020 / 5 = 0.004$.

Next, we calculate the tracking error (sample standard deviation of active returns): Variance = $\frac{\sum(R_{A,i} - \bar{R}_A)^2}{n - 1}$

• Year 1: $(0.002 - 0.004)^2 = 0.000004$
• Year 2: $(-0.002 - 0.004)^2 = 0.000036$
• Year 3: $(0.005 - 0.004)^2 = 0.000001$
• Year 4: $(0.000 - 0.004)^2 = 0.000016$
• Year 5: $(0.015 - 0.004)^2 = 0.000121$

Sum of squared deviations = $0.000004 + 0.000036 + 0.000001 + 0.000016 + 0.000121 = 0.000178$Sample Variance = `$0.00`0178 / 4 = 0.0000445$Tracking Error =$\sqrt{0.0000445} \approx 0.00667$

Information Ratio = $\frac{0.004}{0.00667} \approx 0.5997$ (which is approximately 0.60).