CFA Practice Question

There are 136 practice questions for this study session.

CFA Practice Question

Consider three individual securities whose active returns are uncorrelated with each other and whose forecasts are independent from month to month. The active managed portfolio is rebalanced every month. Its active risk (σA) is 7.0%. The information coefficient is 0.25. What is the expected active portfolio return?
A. 3.03%
B. 5.25%
C. 10.5%
Explanation: The breadth is 3 x 12 = 36. E(RA) = IC x BR1/2 x σA = 0.25 x 361/2 x 7% = 10.5%.

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