Consider the Treynor-Black Model

question 3

Multiple Choice

Consider the Treynor-Black model.The alpha of an active portfolio is 2%.The expected return on the market index is 12%.The variance of the return on the market portfolio is 4%.The nonsystematic variance of the active portfolio is 2%.The risk-free rate of return is 3%.The beta of the active portfolio is 1.15.The optimal proportion to invest in the active portfolio is

• A)48.7%.
• B)98.3%.
• C)47.6%.
• D)100.0%.

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Definitions:

Accrued Salaries

Salaries that have been incurred but not yet paid, representing a liability for the company.

Closing Entries

Entries recorded at the close of an accounting period to move balances from temporary to permanent accounts.

Adjusted Trial Balance

A list of all accounts and their balances after adjusting entries are made, used to prepare financial statements and ensure the ledger accounts are balanced.

Current Assets

Assets that a company expects to convert to cash or use up within one year or the operating cycle, whichever is longer.