The following data are available relating to the performance of Long Horn Stock Fund and the market portfolio: $$\begin{array} { l c c }
& & \text { Market } \
& \text { Long Horn}& \text { Portfolio } \
\text { Average return } & 19 \% & 12 \% \
\text { Standard deviations of returns } & 35 \% & 15 \% \
\text { Beta } & 1.5 & 1.0 \
\text { Residual standard deviation } & 3.0 \% & 0.0 \% \

\end{array}$$ The risk-free return during the sample period was 6%. Calculate the information ratio for Long Horn Stock Fund.
A) 1.33
B) 4.00
C) 8.67
D) 31.43
E) 37.14

Question

The following data are available relating to the performance of Long Horn Stock Fund and the market portfolio: $$\begin{array} { l c c } 
& & \text { Market } \
& \text { Long Horn}& \text { Portfolio } \
\text { Average return } & 19 \% & 12 \% \
\text { Standard deviations of returns } & 35 \% & 15 \% \
\text { Beta } & 1.5 & 1.0 \
\text { Residual standard deviation } & 3.0 \% & 0.0 \% \

\end{array}$$ The risk-free return during the sample period was 6%. Calculate the information ratio for Long Horn Stock Fund.
A) 1.33
B) 4.00
C) 8.67
D) 31.43
E) 37.14

Quizplus · Accepted Answer

Information ratio is calculated as the excess return of the fund over the benchmark, divided by the residual standard deviation of the fund returns.

Excess Return = Average return of Long Horn - Risk-free rate 
= 19% - 6% 
= 13%

Information Ratio = Excess Return / Residual standard deviation 
= 13% / 3% 
= 4.33

Therefore, the answer is A) 1.33.

The Following Data Are Available Relating to the Performance of Long