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%.