Problem 11-07

Consider the annual returns produced by two different active equity portfolio managers (A and B) as well as those to the stock index with which they are both compared:

Period	Manager A		Manager B		Index
1	12.3	%	13.0	%	11.3	%
2	-3.0		-3.2		-2.1
3	15.0		14.0		18.9
4	0.3		1.8		-0.5
5	-7.7		-5.7		-3.8
6	23.6		24.7		21.7
7	-11.8		-11.4		-14.0
8	5.0		5.2		5.2
9	3.4		4.3		2.1
10	19.6		18.3		19.5

Manager A: %

Manager B: %

-Select-Manager AManager BItem 3 's average return is less than the index and -Select-Manager AManager BItem 4 's average exceeded that of the index.

1. Did either manager outperform the index, based on the average annual return differential that he or she produced relative to the benchmark? Use a minus sign to enter negative values, if any. Do not round intermediate calculations. Round your answers to two decimal places.

2. Calculate the tracking error for each manager relative to the index. Which manager did a better job of limiting his or her client's unsystematic risk exposure? Do not round intermediate calculations. Round your answers to two decimal places.

   Manager A: %

   Manager B: %

   -Select-Manager AManager BItem 7 did the better job of limiting the client's exposure to unsystematic risk as the difference between manager's returns and those of the index has a -Select-largersmallerItem 8 standard deviation.