- CFA Exams
- CFA Level I Exam
- Topic 9. Portfolio Management
- Learning Module 45. Analysis of Active Portfolio Management
- Subject 3. The Fundamental Law of Active Management
CFA Practice Question
A manager makes a quarterly forecast of the market, which consists of 10,000 stocks. Assume their active returns are uncorrelated. The information coefficient for the market forecast is 0.2. The information ratio for the market timing is ______.
A. 0.4
B. 20
C. 40
Explanation: BR1/2 x IC = 41/2 x 0.2 = 0.4
Note that the manager is not making an individual forecast for each stock.
Note that the manager is not making an individual forecast for each stock.
User Contributed Comments 3
| User | Comment |
|---|---|
| sunday128 | What is BR? |
| maxsouto | Breadth, but I am not sure how they got that "4" |
| JNW1980 | The 4 is the number of quarters in a year. Breadth in this case is one decision for each quarter * 4 quarters / year = 4. |