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INV4801 ASSIGNMENT 02 SEMESTER 02 2023: 355371
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INV4801 ASSIGNMENT 02 SEMESTER 02 2023: i) Calculate the expected active return, expected active risk and expected information ratio of this subset of managers, given the above allocations. ii) State whether each of the comments made by Cephas is correct or incorrect and explain your sele...

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  • August 18, 2023
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  • 2023/2024
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  • inv4801 assignment 2 semester 2 2023

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INV4801
ASSIGNMENT 02
SEMESTER 02
2023
DISTINCTION
THE TUTOR RESOURCE GUARANTEED

, ASSIGNMENT 02

Due date: Friday, 18 August 2023, 11:00 PM

Unique number: 355371


a) Stacey Case Scenario

Tadiswa Mpofu and Abigail Cephas are portfolio managers for Stacey associates. Mpofu
and Cephas are currently evaluating the expected performance of portfolio managers they
have hired for a subset of their clients' portfolios. For this subset, Mpofu and Cephas have
decided to pursue a core-satellite approach. The data below show the manager's active
returns and active risk. Tatenda management uses a value oriented approach, Matipa
advisors use a socially responsible investment approach, and Kunofiwa managers use an
enhanced indexing approach.



i) Calculate the expected active return, expected active risk and expected
information ratio of this subset of managers, given the above allocations. (5)



NB: To calculate the portfolio active risk, we assume that the correlations between the
managers’ active returns are zero.

Expected active return:

(0.1 × 2.8%) + (0.20 × 0%) + (0.25 × 2%) + (0.05 × 3.5%) + (0.40% × 1.7%) = 1.64%



Expected Active Risk:

√

=√

= 0.0141

= 1.41%




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