Appreciate any help here:
Ratio of Excess Return to MCTR
Was attempting one of online TT questions, (Tina Swan Case Scenario), that lead me to Exhibit 19/(page 267 of Reading 17)
Other than the example of “UK Large Cap” (as explained in book), i am unable to see how the Ratio of Excess Return to MCTR is 0.368.
For example, US equities, it be (6.62% - 2.5%)/14.51 = 0.283
Am i missing anything here? --------------------------------------------------------
- Tina Swan Case Scenario
page 266 (of curriculum/reading 17): quote from textbook: "This scenario is in direct contrast to the typical private equity fund, in which the risk and return characteristics are often dominated by company-specific (idiosyncratic) risk"
To rephrase above: index funds on illiquid assets are dominated by idiosyncratic risk.
Trust you would agree?
Now, going to Question (one of option) from online TT was:
_ Easily tracked indexes in asset classes similar to that of an illiquid asset often do not represent the non-idiosyncratic risk of the illiquid asset very accurately (This is INCORRECT), because (As per solution):_
_ easily tracked indexes for an asset class usually do not capture the idiosyncratic risk component of less liquid assets _
Notwithstanding the correct option, the explanation to an incorrect option is a direct contrast to what’s in the curriculum…?
Book says that funds for illiquid asset class contain (idiosyncratic) risk, BUT the solution says that these funds do not contain (idiosyncratic) risk…??