Consider the Treynor-Black Model

question 4

Multiple Choice

Consider the Treynor-Black model. The alpha of an active portfolio is 1%. The expected return on the market index is 11%. The variance of return on the market portfolio is 0.06. The nonsystematic variance of the active portfolio is 0.02. The risk-free rate of return is 4%. The beta of the active portfolio is 1.1. The optimal proportion to invest in the active portfolio is

• A) 45%.
• B) 25%.
• C) 50%.
• D) 100%.

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Definitions:

Economic Research

The systematic study of the economy or economic phenomena, involving the collection and analysis of data to enhance understanding of economic processes.

Selection Bias

A distortion in the statistical analysis caused by a non-random selection of data, leading to misleading conclusions.

Random Sample

A subset of individuals chosen from a larger set, where each individual has an equal chance of being selected.

Selection Bias

The bias introduced into research results when participants are not randomly chosen, potentially causing the sample to not accurately represent the larger population.