I’ve had some confusion, misunderstanding and doubts when doing 09 Level I Annotated Boot Camp. Appreciate your kind help on this!

I’ve noticed an important difference between you and FRM handbook with respect to calculating information ratio: in all your practice questions and study notes, the formula you used is such that: IR = Alpha/TE, however, the formula used by FRM handbook (as can be seen on page 388 of FRM 5th “Risk-Adjusted Performance Measurement”) is such that: IR = [mu(Rp) – MU(Rb)]/TE, where the numerator is excess return of portfolio versus benchmark return, not Alpha. And I think the excess return do not equal Alpha.

Thank you for your enlightenment and correction!

Cheers

Liming

16/11/09