- CFA Exams
- CFA Level I Exam
- Study Session 17. Portfolio Management (2)
- Reading 47. Analysis of Active Portfolio Management
- Subject 2. Comparing Risk and Return

###
**CFA Practice Question**

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

II. the expected active risk would be doubled.

III. the information ratio would be 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 |