Consider the Treynor-Black Model

question 26

Multiple Choice

Consider the Treynor-Black model. The alpha of an active portfolio is 1%. The expected return on the market index is 11%. The variance of return on the market portfolio is 6%. The nonsystematic variance of the active
Portfolio is 2%. The risk-free rate of return is 4%. The beta of the active portfolio is 1.1. The optimal proportion
To invest in the active portfolio is

• A) 45%.
• B) 25%.
• C) 50%.
• D) 100%.

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