Dear Forum,
I am referring to the L3 2016 past exam, Equity section (question 3). Schweser says A und B are relevant for 2020 as well. Is that really the case? Returns- and holdings-based part in the curriculum is rather limited. Are we supposed to be able to solve the following:
"James Nielsen is a consultant for the Laurier pension fund. Based on performance, he proposes replacing Laurier’s US large-cap growth equity mandate with a pure indexing mandate with zero alpha and zero tracking risk. He reviews the pension fund’s current equity allocation as shown in Exhibit 1. All expected active returns are uncorrelated.
Exhibit 1 Laurier Pension Fund Equity Allocation Details
Equity Mandate Weight in Equity Allocation(%) Expected Alpha (%) Expected Active Risk (%)
US large-cap growth 55 2.5 5.0
European large-cap growth 20 2.3 4.0
Emerging market 25 3.5 8.0
A. Calculate the information ratio for the total equity allocation, assuming Nielsen’s proposal is adopted. Show your calculations"
What do you think?
Thank you!!
C.