Consider the Treynor-Black Model

question 2

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 0.04. The nonsystematic variance of the active portfolio is 0.02. 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:

Rules of The Game

Unwritten, socially accepted norms and practices that guide behavior and interactions in various situations.

Human Capital

The combined abilities, expertise, and non-physical assets belonging to people that can generate economic benefits for themselves, their place of work, or their local area.

Natural Resources

Environmental assets such as minerals, woodlands, bodies of water, and cultivable land, available in nature and exploitable for economic growth.

Financial Institutions

Organizations that provide financial services, such as banks, insurance companies, and stock exchanges.