The Treynor-Black Model Assumes That

question 12

Multiple Choice

The Treynor-Black model assumes 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)All of the options
• E)None of the options

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Definitions:

Joint Manufacturing Processes

A method in which multiple products are produced simultaneously during a production run, allowing cost efficiencies and resource optimization.

Joint Costs

Costs incurred in the process of producing two or more products simultaneously up to a split-off point, where they become distinguishable.

Market Value at Split-Off Method

A method used in accounting to allocate joint costs to products based on their market values at the point where the products are separable or "split off" from the joint process.

Joint Costs

Costs incurred in the process of producing two or more joint products before the point at which the products become separately identifiable.