The active return is most easily determined by compounding the portfolio’s return over the two periods and subtracting the compounded benchmark’s return over the same period as follows:

Portfolio’s compounded return: (1.086)(1.1432) − 1 = 24.15%
Benchmark’s compounded return: (1.069)(1.117) − 1 = 19.41%

Active return = 24.15 − 19.41 = 4.74%

Alternatively, the two period active return can be determined using the following equation:

R_A,2 = R_a,1(1 + R_b,2) + R_a,2(1 + R_p,1)

Where:
R_a,1 = active return for period 1 = 8.6 − 6.9 = 1.70%
R_b,2 = return of the benchmark in period 2 = 11.7%
R_a,2 = active return for period 2 = 14.32 − 11.7 = 2.62%
R_p,1 = return on the portfolio for period 1 = 8.6%

R_A,2 = 1.7(1 + 0.117) + 2.62(1 + 0.086)
= 1.899 + 2.845 = 4.74%