An analyst is given the following information about a portfolio and its benchmark. In particular, the analyst is concerned that the portfolio is a closet index fund.1 The T-bill return chosen to represent the risk-free rate is 0.50%. Benchmark ; Portfolio Return 8.75%; 8.90% Risk 17.50% ; 17.60% Active Return 0.00% ; 0.15% Active Risk 0.00% ; 0.79% Sharpe Ratio 0.4714; 0.4773 Information Ratio N/A ; 0.1896 Which of the following three statements does not justify your belief that the portfolio is a closet index? I. The Sharpe ratio of the portfolio is close to the Sharpe ratio of the benchmark. II. The information ratio of the portfolio is relatively small. III. The active risk of the portfolio is very low. A Statement I
B Statement II C Statement III
Why is statement II the correct answer and not statement 1?