can someone explain the answers. there is no answer key with me. How did they arrive at IR=2, Why DAX(price weighted index) not selected.
anyone with schweser?
page, book, exam #…help us help you.
Schweser practice exam 3 Afternoon section Question 17.1 & 17.2
no one has schweser? I thought I was the odd one out with Stalla…
17.1’s IR = 0.5 Use enhanced indexing because the information ratio is positive (which is a stupid reason because the ir will b positive whenever there is alpha)
17.1: figuer out the weights of the holdings (US equity and DAX). take the excess return and then weight it - that’s your portfolio’s active return. active risk: sqrt(weight^2*active risk^w) figure that out and you have your active risk. plug and chug. 17.2 active return = enhanced index return – DAX return = 0.135 - 0.130 = 0.005 active risk = 0.015 (from Figure 2) information ratio = 0.005 / 0.015 = 0.3333 The information ratio indicates the enhanced indexing has produced better results than passive investing. Based on this information, the enhanced indexing approach should be selected. The DAX index consists of the 30 largest and most liquid German stocks and could theoretically be fully replicated using 30 stocks (Yes).
thank you both.