Consider the Treynor-Black Model

question 30

Multiple Choice

Consider the Treynor-Black model. The alpha of an active portfolio is 2%. The expected return on the market index is 16%. The variance of return on the market portfolio is 4%. The nonsystematic variance of the active portfolio is 1%. The risk-free rate of return is 8%. The beta of the active portfolio is 1. The optimal proportion to invest in the active portfolio is

• A) 0%.
• B) 25%.
• C) 50%.
• D) 100%.

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Definitions:

Apparel Segment

The apparel segment refers to the portion of a business or market that is focused on the production and sale of clothing and accessories.

Accessories Segment

A part of a business that focuses on products that are meant to complement the main product offerings, often enhancing the user experience.

Fixed Expenses

Costs that do not change with the level of output or activity within a certain period.

Break-Even

The point at which total revenues equal total costs, meaning there is neither profit nor loss.