A Tracking Error Is One Way That an Index Portfolio

question 5

Multiple Choice

A tracking error is one way that an index portfolio manager's performance can be evaluated.Two such measures that compare this are:

• A) average and absolute tracking performance
• B) average and maximum tracking performance
• C) relative and absolute tracking performance
• D) maximum and relative tracking performance

---

Definitions:

Economic Profit

The difference between total revenue and total costs, including both explicit and opportunity costs, indicating true profitability.

Explicit Costs

Direct payments made to others in the course of running a business, such as wage, rent, and materials.

Production Costs

The total expense incurred in manufacturing a product or providing a service, including raw materials, labor, and overhead costs.

Accounting Profit

The total revenue of a business minus its explicit costs, not including opportunity costs.