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Using Sharpe's single-index model, total variance of a stock decomposes into:
ATracking error and information ratio
BMean return and skewness
CActive risk and benchmark risk
DSystematic variance and unsystematic variance
Answer & Solution
Correct answer: D. Systematic variance and unsystematic variance
1. Identify what the question asks: this concept maps to singleindexmodel (§6).
2. Apply the framework or formula relevant to the topic.
3. Eliminate distractors and arrive at the correct option (D).
_Source: ICAI BoS CA Final Paper 2, Ch 6 "Portfolio Management"_
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