An Investor’s portfolio is made up as follows. 40% Passive Index 20% Enhanced Index, .5% Active Return, 1.0% Tracking Risk. 20% Manager A, 1.5% Active Return, 2.5% Tracking Risk 20% Manger B, 3.0% Active Return, 6% Tracking Risk 1.) What percentage of the portfolio is the satellite. A.) 40% B.) 50% C.) 60% 2.) What is the Information Ratio of the Portfolio. A.) .76 B.) .78 C.) .80
- 40% 2) I’m getting an IR of .76 Active Return of 1%, Active Risk of 1.32%
soddy1979 Wrote: ------------------------------------------------------- > 1) 40% > 2) I’m getting an IR of .76 > Active Return of 1%, Active Risk of 1.32% Just to confirm, reasoning for satellite being 40% is that core can be passive or enhanced index.
soddy1979 Wrote: ------------------------------------------------------- > 1) 40% > 2) I’m getting an IR of .76 > Active Return of 1%, Active Risk of 1.32% You are completely right. That was my fault. I always forget on BAII if you hit Square Root and Divide by answer it divides by the answer before the square root. That is why you write things out kids.
soddy1979 Wrote: ------------------------------------------------------- > soddy1979 Wrote: > -------------------------------------------------- > ----- > > 1) 40% > > 2) I’m getting an IR of .76 > > Active Return of 1%, Active Risk of 1.32% > > Just to confirm, reasoning for satellite being 40% > is that core can be passive or enhanced index. Enhanced indexing does count as the core. Thought it was a good question to ask.
It certainly was. I’m just glad to see I know something…
1 A 2 1.44
C, and I too am getting .76 as the IR.
Paraguay Wrote: ------------------------------------------------------- > soddy1979 Wrote: > -------------------------------------------------- > ----- > > soddy1979 Wrote: > > > -------------------------------------------------- > > > ----- > > > 1) 40% > > > 2) I’m getting an IR of .76 > > > Active Return of 1%, Active Risk of 1.32% > > > > Just to confirm, reasoning for satellite being > 40% > > is that core can be passive or enhanced index. > > Enhanced indexing does count as the core. > > Thought it was a good question to ask. Yeah, the CFA makes it clear that Enhanced Indexing is really just a form of Active Investing.
- A 2. A I think I finally got a question.
5% Active Return?you mean 0.5% or 5%?
[(.2)(.5) + (.2)(1.5) + (.2)(3.0)] / [(.2^2)(1.0^2) + (.2^2)(2.5^2) + (.2^2)(6^2)]^1/2 = 1.0/1.315 = .76
damn good question. is this a shweser product?
niraj_a Wrote: ------------------------------------------------------- > damn good question. is this a shweser product? I wrote it myself, which is why the answer was screwed up to start.
so what is the right answer for the IR?
mcap11 Wrote: ------------------------------------------------------- > so what is the right answer for the IR? .76. [(.2)(.5) + (.2)(1.5) + (.2)(3.0)] / [(.2^2)(1.0^2) + (.2^2)(2.5^2) + (.2^2)(6^2)]^1/2 = 1.0/1.315 = .76 I edited my post but it was wrong to start.
0.76
ok, no clue what you are doing in that equation
mcap11 Wrote: ------------------------------------------------------- > ok, no clue what you are doing in that equation Weighted average active return / weighted average deviation assuming uncorrelated active returns.
So, just to confirm… ehnahced index does or does not count towards the core? A is 40% (index only) and C is 60% (index and enhanced index).