Consider the Treynor-Black Model

question 5

Multiple Choice

Consider the Treynor-Black model. The alpha of an active portfolio is 1%. The expected return on the market index is 16%. The variance of the 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 1.05. The optimal proportion to invest in the active portfolio is

• A) 48.7%.
• B) 50.0%.
• C) 51.3%.
• D) 100.0%.

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