those are the 5th and 6th quetsion in the case, I just dont get it at all , for posticve relative return, if you dont overweight stock but you can overweight sector, that also produce active return right?
The last question, I dont even understand it, can someone help?
Just memorize the formula, question # 5 was referring to the correlation triangle, if the portfolio manager’s forecasted active return doensn’t translate into active weight, then there is no active return. Question # 6 is straightforward, the expected active return on a constrainted portfolio is E(Ra)= TC* IC * sqrt of BR * active risk, if the breath is artifically high, then expected active return is inflated.