# CFA Level II Volume 4 Equity Valuation Module 2 Market-Based Valuation, Example 34

This is in respect of CFA Level II Volume 6 Portfolio Management Module 2, Practice Problems Question 25 on page 144. I am not sure how to find the information coefficient in the question. In the solution to the question on page 150, it states that the information coefficient is the correlation between the risk weighted forecast and the realised risk weighted returns, but it doesn’t tell us how to get from that information to the information coefficient. Can anyone help? Thanks!

You need to the E(r)/risk for each manager and stock and for the actual return

For example
M(1) Stock 1 E(r) = 0.03, risk = 0.17
Risk adjusted return = 0.03/0.17 = 0.176

Actual stock 1 0.06/0.17 = 0.353

Once you have done this for all 4 stocks and each manager you get the tables in the answer.

Then work out the correlations. You can you use the DATA and STAT function on the calculation in “Lin” model to get correlation.

This is way too much for an exam question.