The Treynor-Black model assumes 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)All of the options are correct.

Question

Quizplus · Accepted Answer

The Treynor-Black model assumes that the objective of security analysis is to form an active portfolio of a limited number of mispriced securities, and that the cost of less than full diversification comes from the nonsystematic risk of the mispriced stock. The model also assumes that 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. Therefore, all of the options are correct.

The Treynor-Black Model Assumes That