# De-annualizing a target alpha return

apologies if this is not the correct place for this type of question, but I just want to confirm if the following de-annualization is correct.

if a manager states that he will earn 200 bps of target excess returns over a year. How much daily target excess returns would be expected?

i believe that the de-annualization should be 200 ^ (1/252), but a colleague said that it should be 200 * 1/252. Which method is the most correct approach?

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• apparently i need at least 15 reputation to do so... but i would upvote your response if i could! :) – Monduras Feb 24 '15 at 13:48

It is neither: Because returns are growth rates that have to be compounded and basis points are percentage points divided by $100$ you do the following:
$$10000\ (\sqrt[252]{\frac{200}{10000}+1}-1)\approx 0.7858\ bp$$