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:

Equation

A mathematical declaration that affirms two expressions, usually containing variables, are equal.

Inequality

A mathematical statement that indicates the relationship of less than, greater than, less than or equal to, or greater than or equal to between two values.

Solve

To find the solution or answer to a problem or equation.

Set Notation

The formal language used to describe a set, including symbols and conventions for expressing membership, union, intersection, and other set properties.