Consider the annual returns produced by two different active equity portfolio managers (A and B) as well as those to the stock index with which they are both compared:

Period 1

2 3 4 5 6 7 8 9

10

Manager A 12.8%

2.1

15.6 0.8 7.9

23.2 10.4 5.6 2.3

19.0

Manager B 13.9%

4.2

13.5 2.9 5.9

26.3 11.2 5.5 4.2

18.8 Index

11.8% 2.2

18.9 0.5 3.9

21.7 13.2 5.3 2.4

19.7

a. Did either manager outperform the index, based on the average annual return differen-tial that he or she produced relative to the benchmark? Demonstrate.

b. Calculate the tracking error for each manager relative to the index. Which manager did a better job of limiting his or her client's unsystematic risk exposure? Explain.