EXPECTED ACTIVE RETURN = (IC)√𝐵𝑅 × (ACTIVE RISK)

12. B is correct. Expected active return = (IC)√𝐵𝑅 × (Active risk) . If the investment decisions

are not independent, or if individual securities are impacted by assumptions or strategies that

remain the same through multiple rebalancing periods, then breadth will be lower reducing

the information ratio and thus the expected return. Section 6.2. LO.e.