CFA Practice Question

There are 136 practice questions for this study session.

CFA Practice Question

If the active weights in a managed portfolio are all doubled, ______

I. the expected active return would be doubled.
II. the expected active risk would be doubled.
III. the information ratio would be doubled.
Correct Answer: I and II

The information ratio would not change.

User Contributed Comments 3

User Comment
deguchiusa Please explain why expected active risk will be doubled.
tianhes I am guessing it is because the combined weights will exceed 100%, and thus the investor will use leverage. Therefore expected active risk will double?
b25331 If all active weights are doubled, the expected active return would be doubled as well. This goes into the numerator.
If active weights are doubled, so is active risk. This goes into the denominator. This leave the IR ratio unchanged.
What happens outside the portfolio with respect to e.g. leverage does not matter in this case
You need to log in first to add your comment.