Consider the Treynor-Black Model

question 32

Multiple Choice

Consider the Treynor-Black model. The alpha of an active portfolio is 3%. The expected return on the market index is 18%. The standard deviation of the return on the market portfolio is 25%. The nonsystematic standard
Deviation of the active portfolio is 15%. The risk-free rate of return is 6%. The beta of the active portfolio is 1.2.
The optimal proportion to invest in the active portfolio is

• A) 50.0%.
• B) 69.4%.
• C) 72.3%.
• D) 80.6%.
• E) 100.0%.

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Definitions:

Seasonal Index

A factor used in time series analysis that adjusts for the seasonality of data, reflecting typical fluctuations that occur at specific times of the year.

Deseasonalized

The process of removing seasonal effects from a time series in order to identify underlying trends.

Linear Model

A statistical model that assumes a linear relationship between the input variables (independent) and the single output variable (dependent).

Trend

A general direction in which something is developing or changing, often identified through the analysis of data over time.