The Treynor-Black Model Does Not Assume That

question 20

Multiple Choice

The Treynor-Black model does not assume that

• A) the objective of security analysis is to form an active portfolio of a limited number of mispriced securities.
• B) the cost of less than full diversification comes from the nonsystematic risk of the mispriced stock.
• C) the optimal weight of a mispriced security in the active portfolio is a function of the degree of mispricing, the market sensitivity of the security, and its degree of nonsystematic risk.
• D) indexing is always optimal.

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Definitions:

Life Stress Theory

A psychological theory that examines how stress from life events affects an individual's mental and physical health.

Self-blame Theory

A psychological concept proposing that individuals may attribute personal failures or negative events to their own actions or shortcomings, potentially leading to feelings of guilt and inadequacy.

Artifact Theory

A hypothesis that suggests observed differences in certain measurements or outcomes are not due to the actual difference in what is being measured but to the method of measurement.

Lack-of-control Theory

A theory suggesting that the inability to exert control over one's environment or self can lead to psychological disorders.