According to the Treynor-Black Model, the Weight of a Security

question 12

Multiple Choice

According to the Treynor-Black model, the weight of a security in the active portfolio depends on the ratio of __________ to __________.

• A)the degree of mispricing; the nonsystematic risk of the security
• B)the degree of mispricing; the systematic risk of the security
• C)the market sensitivity of the security; the nonsystematic risk of the security
• D)the nonsystematic risk of the security; the systematic risk of the security

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Definitions:

Budget Line

A graphical representation of all possible combinations of two goods that can be purchased with a given income and prices.

Commodity 1

A basic good used in commerce that is interchangeable with other goods of the same type, typically referred to when discussing market transactions.

Units of Y

A placeholder term generally referring to quantities or measurements of a variable Y.

Units of X

A measure or quantity of a particular good, product, or factor of production expressed as a discreet unit for analysis or transaction purposes.