LOS s: Distinguish among the components of total active return ("true" active return and "misfit" active return) and their associated risk measures and explain their relevance for evaluating a portfolio of managers.

Q1. Using the following information, what is the investor’s “true” information ratio?

A)   1.43.

B)   -0.21.

C)   1.03.

Q2. Which of the following is least likely to be an objective of optimization after decomposing total active return into true and misfit components?

A)   Generate a positive “true” information ratio.

B)   Maximize total active return.

C)   Eliminate misfit risk.

Q3. n which of the following portfolios would misfit risk be largest? A portfolio:

A)   generated using a core-satellite approach.

B)   generated using a completeness fund approach.

C)   that is indexed to a broad market.

Q4. Using the following information, what is the investor’s “true” information ratio?

A)   –0.63.

B)   0.60.

C)   –0.52.