- CFA Exams
- CFA Level I Exam
- Study Session 17. Portfolio Management (2)
- Reading 47. Analysis of Active Portfolio Management
- Subject 4. Applications of the Fundamental Law

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**CFA Practice Question**

In the "Global Equity Strategy" example, the transfer coefficient, information coefficient, and breadth are assumed to be 0.982, 0.1, and 27.0, respectively. The United Kingdom is expected to have a strong outperformance (2.0) and its active return volatility is calculated as 5.8%. What is its expected active return?

B. 1.2%

C. 2.9%

A. 5.8%

B. 1.2%

C. 2.9%

Correct Answer: B

The rule is IC x volatility x score. 0.1 x 5.8% x 2 = 1.2%

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**User Contributed Comments**
2

User |
Comment |
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davidt87 |
why did they even give us that equation in the previous section? where is this equation coming from? |

CFAJ |
the "score" is basically how much it outperforms the outperform in proportion to the portfolio return? |