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The Layton Growth Fund has an alpha of 1.6 percent. You have determined that Layton’s information...

The Layton Growth Fund has an alpha of 1.6 percent. You have determined that Layton’s information ratio is 0.20. What must Layton’s tracking error be relative to its benchmark? (Enter your answer as a percent rounded to 2 decimal places.)

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Answer #1

Alpha = (Portfolio Return - Benchmark Return)

Information Ratio = (Portfolio Return - Benchmark Return) / Tracking Error

Information Ratio = Alpha / Tracking Error

Tracking Error = (Alpha / Information Ratio) = 1.6 / 0.2 = 8 %

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