Consider these two investment strategies strategy is

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30. Consider these two investment strategies: Strategy ___ is the dominant strategy because __________. A. 1, it is riskless B. 1, it has the highest reward/risk ratio C. 2, its return is at least equal to Strategy 1 and sometimes greater D. 2, it has the highest reward/risk ratio E. both strategies are equally preferred. Strategy 2 dominates Strategy 1, even though it is riskier, because it always returns at least as much as Strategy 1 and sometimes more. Difficulty: Moderate 27-16
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Chapter 27 - The Theory of Active Portfolio Management 31. Consider these two investment strategies: Strategy ___ is the dominant strategy because __________. Strategy 2 dominates Strategy 1, even though it is riskier, because it always returns at least as much as Strategy 1 and sometimes more. Difficulty: Moderate 32. The Treynor-Black model assumes that All of the statements correctly describe assumptions of the Treynor-Black model. Difficulty: Moderate 27-17
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Chapter 27 - The Theory of Active Portfolio Management 33. The Treynor-Black model does not assume that Statements A, B, and C correctly describe assumptions of the Treynor-Black model. Difficulty: Moderate 34. 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% w O = [3%/2.25%]/[(18% - 6%)/6.25%] = 0.6944; w * = 0.6944/[1 + (1 - 1.2)0.6944] = 0.8064, or 80.6%. Difficulty: Difficult 27-18
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Chapter 27 - The Theory of Active Portfolio Management
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