Assume that the tracking error of Portfolio X is 8.70 percent. What is the infor

Question

Assume that the tracking error of Portfolio X is 8.70 percent. What is the information ratio for Portfolio X?

Assume that the tracking error of Portfolio X is 8.70 percent. What is the information ratio for Portfolio X?

Consider the following information concerning three portfolios, the market portfolio, and the risk-free asset: Assume that the tracking error of Portfolio X is 8.70 percent. What is the information ratio for Portfolio X? (Negative value should be indicated by a minus sign. Do not round intermediate calculations. Round your answer to 4 decimal places.) Information ratio

Explanation / Answer

The information ratio (IR) is a ratio of portfolio returns above the returns of a market to the volatility of those returns. The information ratio (IR) measures a portfolio manager's ability to generate excess returns relative to a benchmark,

Rp = Return of the portfolio
Ri = Return of the index or benchmark or market
Sp-i = Tracking error (standard deviation of the difference between returns of the portfolio and the returns of the index)

Where data of portfolio X is given

Rp = 15.5
Ri = 10.80
Sp-I = tracking error of X is 8.70

Pitting the values in formula we get

Information ratio= (15.5-10.8) / 8.70

Information ratio = 0.5402

Related Questions

Navigate

• Browse (All)
• Browse A
• Subjects

---