Consider the following table which provides a comparison of the returns for a portfolio and its benchmark.Year012345ReturnAlphaSumTracking ErrorInformation RatioNote: the numbers in red are negativeb. Calculate the portfolio alpha in percentage termsc. Calculate the tracking error of the portfolio in percentage termsPortfolio Return16%9%-35%22%84%Requireda. Calculate the annualised return of the portfolio and the benchmark in percentage termsd. Calculate the information ratio of the portfolio to 2 decimal placese. Determine to 2 decimal places the amount of Carhart alpha for the portfolio in percentage terms if:o the risk-free rate is 3.25%,o the return of the market is 9.20%,o the exposure to the value factor (when the premium is 3.15%) is 0.65 (ie 65%),o the exposure to the small cap factor (when the premium is 2.05%) is -0.12, ando the exposure to the momentum factor (when the premium is 46%) is 0.1.Benchmark Return14%7%-38%18%86%

Information ratio is calculated as shown below.

ired Year 0 1 2 3 4 5 Return Alpha Sum Tracking Error Information Ratio Note: the numbers in red are negative Portfolio Return 16% 9% -35% 22% 84% alculate the annualised return of the portfolio and the benchmark in percentage terms. Benchmark Return 14% 7% -38% 18% 86%

ired Year 0 1 2 3 4 5 Return Alpha Sum Tracking Error Information Ratio Note: the numbers in red are negative Portfolio Return 16% 9% -35% 22% 84% alculate the annualised return of the portfolio and the benchmark in percentage terms. Benchmark Return 14% 7% -38% 18% 86%

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Question

Consider the following table which provides a comparison of the returns for a portfolio and its benchmark.
Year
0
1
2
3
4
5
Return
Alpha
Sum
Tracking Error
Information Ratio
Note: the numbers in red are negative
b. Calculate the portfolio alpha in percentage terms
c. Calculate the tracking error of the portfolio in percentage terms
Portfolio Return
16%
9%
-35%
22%
84%
Required
a. Calculate the annualised return of the portfolio and the benchmark in percentage terms
d. Calculate the information ratio of the portfolio to 2 decimal places
e. Determine to 2 decimal places the amount of Carhart alpha for the portfolio in percentage terms if:
o the risk-free rate is 3.25%,
o the return of the market is 9.20%,
o the exposure to the value factor (when the premium is 3.15%) is 0.65 (ie 65%),
o the exposure to the small cap factor (when the premium is 2.05%) is -0.12, and
o the exposure to the momentum factor (when the premium is 46%) is 0.1.
Benchmark Return
14%
7%
-38%
18%
86%

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