What is the Tracking Error (TE) for the Growth Mutual Fund based on the given data for Returns in %?
The Tracking Error for the Growth Mutual Fund is 0.675 or 0.68 (rounded to two decimal places). Therefore, the correct answer is h) 0.68.
Understanding Tracking Error Calculation
Tracking error is the difference between the returns of a portfolio and its benchmark. In this case, Olivia needs to calculate the tracking error for the Growth Mutual Fund using the provided data for Fund Returns and Benchmark Returns.
The formula for calculating Tracking Error (TE) is:
TE = Standard deviation of (Fund Returns - Benchmark Returns)
Now, let's calculate the Tracking Error for the fund using the given data:
Fund Returns: 7.18, 13.31, 4.84, 11.96, 8.24, 12.36, 8.55, 12.19, 5.82, 11.79, 10.26, 12.8
Benchmark Returns: 7.1, 12.5, 4.4, 10.2, 8.1, 12.2, 8.2, 12.4, 5.6, 11.6, 10.1, 12.5
To calculate TE:
TE = Standard deviation of (7.18 - 7.1, 13.31 - 12.5, 4.84 - 4.4, 11.96 - 10.2, 8.24 - 8.1, 12.36 - 12.2, 8.55 - 8.2, 12.19 - 12.4, 5.82 - 5.6, 11.79 - 11.6, 10.26 - 10.1, 12.8 - 12.5)
TE = Standard deviation of (0.08, 0.81, 0.44, 1.76, 0.14, 0.16, 0.35, -0.21, 0.22, 0.19, 0.16, 0.3)
TE = 0.675
Therefore, the Tracking Error for the Growth Mutual Fund is 0.675 or 0.68 (rounded to two decimal places). The correct answer to the question is h) 0.68.