Hi David,

I have been doing the GARP practice questions recently, and I encountered one, on tracking error calculation, that really has me perplexed (see attached).

According to the explanation, the correct answer is "c" 3.05%. But, when I performed the calculation (on my calculator and via excel spreadsheet) I get 3.44%. To clarify, I took the difference from between each return from the fund and the mean (arithmetic) return for the benchmark (i.e., 6%) and squared each difference, and took the average of the summed squared differences to get the average variance (i.e., 0.00001185). I then took the square root of the variance to get the standard deviation/tracking error and got 3.44%. I believe my calculation process is consistent with the explanation and actual reference text, but am not 100% sure.

Can you please take a look at this and let me know if you are able to get the same answer as the explanation? If so, can you tell me what I am doing wrong?

Thanks,

Charles

I have been doing the GARP practice questions recently, and I encountered one, on tracking error calculation, that really has me perplexed (see attached).

According to the explanation, the correct answer is "c" 3.05%. But, when I performed the calculation (on my calculator and via excel spreadsheet) I get 3.44%. To clarify, I took the difference from between each return from the fund and the mean (arithmetic) return for the benchmark (i.e., 6%) and squared each difference, and took the average of the summed squared differences to get the average variance (i.e., 0.00001185). I then took the square root of the variance to get the standard deviation/tracking error and got 3.44%. I believe my calculation process is consistent with the explanation and actual reference text, but am not 100% sure.

Can you please take a look at this and let me know if you are able to get the same answer as the explanation? If so, can you tell me what I am doing wrong?

Thanks,

Charles