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 0.04. The nonsystematic variance of the active portfolio is 0.02. 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%.

Question

Quizplus · Accepted Answer

The Answer of 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 0.04. The nonsystematic variance of the active portfolio is 0.02. 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%.

Consider the Treynor-Black Model