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Which of the following pairs of weights would be used to achieve the highest Sharpe ratio and optimal amount of active risk through combining the Indigo Fund and benchmark portfolio, respectively? A.1.014 on Indigo and βˆ’0.014 on the benchmark B.1.450 on Indigo and βˆ’0.450 on the benchmark C.1.500 on Indigo and βˆ’0.500 on the benchmark Solution A is correct. The optimal amount of active risk is 𝜎𝐴=IRSR𝐡𝜎𝐡=0.150.33318.0%=8.11% . The weight on the active portfolio (Indigo) would be 8.11%/8.0% = 1.014, and the weight on the benchmark portfolio would be 1 βˆ’ 1.014 = βˆ’0.014. We can demonstrate that these weights achieve the maximum Sharpe ratio (of 0.365). Note that 8.11% is the optimal level of active risk and that Indigo has an expected active return of 1.014(1.2%) = 1.217% over the benchmark and a total excess return of 6.0% + 1.217% = 7.217%. The portfolio total risk is ΟƒP2 = ΟƒB2 + ΟƒA2 = 18.02 + 8.1112 = 389.788. Taking the square root, ΟƒP = 19.743, and the optimal Sharpe ratio is indeed 7.217/19.743 = 0.365.

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Which of the following pairs of weights would be used to achieve the highest Sharpe ratio and optimal amount of active risk through combining the Indigo Fund and benchmark portfolio, respectively? A.1.014 on Indigo and βˆ’0.014 on the benchmark B.1.450 on Indigo and βˆ’0.450 on the benchmark C.1.500 on Indigo and βˆ’0.500 on the benchmark Solution A is correct. The optimal amount of active risk is 𝜎𝐴=IRSR𝐡𝜎𝐡=0.150.33318.0%=8.11% . The weight on the active portfolio (Indigo) would be 8.11%/8.0% = 1.014, and the weight on the benchmark portfolio would be 1 βˆ’ 1.014 = βˆ’0.014. We can demonstrate that these weights achieve the maximum Sharpe ratio (of 0.365). Note that 8.11% is the optimal level of active risk and that Indigo has an expected active return of 1.014(1.2%) = 1.217% over the benchmark and a total excess return of 6.0% + 1.217% = 7.217%. The portfolio total risk is ΟƒP2 = ΟƒB2 + ΟƒA2 = 18.02 + 8.1112 = 389.788. Taking the square root, ΟƒP = 19.743, and the optimal Sharpe ratio is indeed 7.217/19.743 = 0.365.

I did not understand how did they calculate the total excess return to be 7.217%, I understood the 1.217% part in it but how did they calculate the 6% part. Please explain

excess return