Chartered Investment Manager (CIM) Practice Exam · Question
The Canadian Pension Plan Investment Board (CPPIB) is reviewing the performance of a mandate managed by an external firm. Over the past quarter, the external manager's portfolio returned 7.5%, while its custom benchmark returned 7.0%. The active return (portfolio return - benchmark return) was 0.5%. The standard deviation of this active return was 0.8%. Calculate the Information Ratio for this manager.
The Information Ratio is calculated as the Active Return divided by the Tracking Error (standard deviation of active return). In this case, 0.5% / 0.8% = 0.625.
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Question: The Canadian Pension Plan Investment Board (CPPIB) is reviewing the performance of a mandate managed by an external firm. Over the past quarter, the external manager's portfolio returned 7.5%, while its custom benchmark returned 7.0%. The active return (portfolio return - benchmark return) was 0.5%. The standard deviation of this active return was 0.8%. Calculate the Information Ratio for this manager.
Answer options: ✅ 0.625
- 0.700
- 0.800
- 0.500
Correct answer: 0.625
Explanation: The Information Ratio is calculated as the Active Return divided by the Tracking Error (standard deviation of active return). In this case, 0.5% / 0.8% = 0.625.
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