The Table Below Provides Returns on a Portfolio Along with Returns

question 35

Multiple Choice

The table below provides returns on a portfolio along with returns for the corresponding benchmark index for the past eight quarters. The table also provides the difference between portfolio returns and the benchmark index, the average of these differences over the past eight quarters and the standard deviation of these differences. $\begin{array}{cccc}\text { Period } & \text { Portfolio } & \text { Index } & \text { Difference } \\\hline 1 & 0.05 & 0.027 & 0.023 \\2 & -0.036 & -0.046 & 0.010 \\3 & 0.022 & 0.019 & 0.003 \\4 & 0.012 & 0.022 & -0.010 \\5 & -0.003 & -0.001 & -0.002 \\6 & -0.023 & -0.03 & 0.007 \\7 & 0.089 & 0.081 & 0.008 \\8 & -0.008 & 0.006 & -0.014\\\\\text { Average } &&& 0.003 \\\mathrm{SD} &&& 0.011789\end{array}$ The annualized tracking error for this period is

• A)2.36%
• B)4.08%
• C)2.89%
• D)3.33%
• E)1.18%

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Definitions:

Random Assignment

The process of allocating participants randomly to different groups in an experiment to ensure each group is similar at the start.

Independent Variables

The variables in an experiment that are manipulated by the researcher to explore their effect on dependent variables.

True Experimental Design

A research design that includes random assignment of participants to groups and manipulation of an independent variable to determine its effect on a dependent variable.

Cost

The expenditure or amount of resources (financial, time, labor) required to achieve something.