Consider the Treynor-Black Model

question 11

Multiple Choice

Consider the Treynor-Black model. The alpha of an active portfolio is 3%. The expected return on the market index is 10%. The variance of the return on the market portfolio is 4%. The nonsystematic variance of the active
Portfolio is 2%. The risk-free rate of return is 3%. The beta of the active portfolio is 1.15. The optimal proportion
To invest in the active portfolio is

• A) 48.7%.
• B) 98.4%.
• C) 51.3%.
• D) 100.0%.

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Definitions:

James-Lange Theory

An idea that posits emotions are experienced after the body undergoes physiological changes.

Emotion

A complex psychological state involving an experiential, physiological, and behavioral response to a personally significant matter.

Maslow's Hierarchy

A theory in psychology proposed by Abraham Maslow in his 1943 paper "A Theory of Human Motivation," which describes a hierarchy of human needs.

Pyramid

A structure or system shaped with a broad base that narrows towards the top, often used metaphorically to describe hierarchies.