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Quantitative Analysis

For a normal distribution with mean 60 and standard deviation 6, the probability of an observation falling between 62 and 67 is 0.2478. A portfolio's annual returns from 1992-2003 are given, deviating from its benchmark. The data is grouped into intervals and the frequency, relative frequency, and cumulative relative frequency are calculated. The modal interval of the grouped data is -4.55 to 0.09. The tracking risk, or standard deviation of the deviations from the benchmark return, is 5.41%.

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19 views

Quantitative Analysis

For a normal distribution with mean 60 and standard deviation 6, the probability of an observation falling between 62 and 67 is 0.2478. A portfolio's annual returns from 1992-2003 are given, deviating from its benchmark. The data is grouped into intervals and the frequency, relative frequency, and cumulative relative frequency are calculated. The modal interval of the grouped data is -4.55 to 0.09. The tracking risk, or standard deviation of the deviations from the benchmark return, is 5.41%.

Uploaded by

rafali
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as XLS, PDF, TXT or read online on Scribd
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Question 1

For normal distribution with mean = 60 and standard deviation = 6, determine the probability content of the interval [62 to

z = (x - mu)/sigma = (62 - 60)/6 = 0.3333 and z = (67 - 60)/6 = 1.1667


P(62 < x < 67) = P(0.3333 < z < 1.1667) = 0.2478

Question 2

The table below gives the deviation of a hypothetical portfolio’s annual total return (gross of fees) from its benchmark’s ann

Portfolio's Deviation from benchmark return, 1992-2003


1992 -7.14%
1993 1.62%
1994 2.48%
1995 -2.59%
1996 9.37%
1997 -0.55%
1998 -0.89%
1999 -9.19%
2000 -5.11%
2001 -0.49%
2002 6.84%
2003 3.04%

(1) Calculate the frequency, cumulative frequency, relative frequency, and cumulative relative frequency for the portfolio

-9.19<A<-4.55
-4.55<B<0.09
0.09<C<4.73
4.73<D<9.37

Class Interval Frequency Cumulative Frequency Relative Frequency


-9.19<A<-4.55 3 3 0.25
-4.55<B<0.09 4 7 0.33
0.09<C<4.73 3 10 0.25
4.73<D<9.37 2 12 0.17

Total 12 1.00

(2) Construct a histogram using the data. Identify the modal interval of the grouped data. Tracking risk (also called tracking

Histogram
4.5
uency

4
Histogram
4.5
Frequency

4
3.5
3
2.5
2
1.5
1
0.5
0
-9.19<A<-4.55 -4.55<B<0.09 0.09<C<4.73 4.73<D<9.37
Class Interval

The modal interval is -4.55 to 0.09

Tracking Risk = Standard Deviation of the deviations from the benchmark return = 5.41%.
termine the probability content of the interval [62 to 67]

total return (gross of fees) from its benchmark’s annual returns, for a 12-year period ending in 2003.

Year Deviation from Benchmark Return (Sorted)


1999 -9.19
1992 -7.14
2000 -5.11
1995 -2.59
1998 -0.89
1997 -0.55
2001 -0.49
1993 1.62
1994 2.48
2003 3.04
2002 6.84
1996 9.37

Standard Deviation, s = 5.41

y, and cumulative relative frequency for the portfolio’s deviation from benchmark return, given the set of intervals in the table below

Cumulative Relative Frequency


0.25
0.58
0.83
1.00

the grouped data. Tracking risk (also called tracking error) is the standard deviation of the deviation of a portfolio’s gross-of-fees total
.73<D<9.37

k return = 5.41%.
ntervals in the table below

portfolio’s gross-of-fees total returns from benchmark return. Calculate the tracking risk of the portfolio, stated in percent (give the an
ed in percent (give the answer to two decimal places)

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