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:

Superiority Complex

A psychological defense mechanism in which an individual's feelings of superiority are exaggerated, often to mask feelings of inferiority.

Defence Mechanisms

Unconscious psychological strategies used to cope with reality and maintain self-image by reducing anxiety arising from unacceptable thoughts or feelings.

Reciprocal Determinism

A concept in psychology that suggests a person's behavior both influences and is influenced by personal factors and the social environment.

Mutual Dependency

A condition in which two or more entities rely on each other equally for resources, support, or existence.