Question #37
Reading: Reading 40 Analysis of Active Portfolio Management
PDF File: Reading 40 Analysis of Active Portfolio Management.pdf
Page: 16
Status: Incorrect
Correct Answer: A
Your Answer: A
Question
When choosing an active manager, an investor with a high level of risk aversion:
Answer Choices:
A. will choose the manager with the highest active return
B. will choose a manager with the lowest active risk
C. will choose the manager with the highest information ratio
Explanation
Value added is independent of the level of risk aversion. All investors will choose the
manager with the highest information ratio. Those with higher levels of risk aversion will
implement the strategy less aggressively (i.e., invest a larger proportion in the benchmark
portfolio).