According to the treynor black model the weight of a

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35. According to the Treynor-Black model, the weight of a security in the active portfolio depends on the ratio of __________ to __________. A. the degree of mispricing; the nonsystematic risk of the security B. the degree of mispricing; the systematic risk of the security C. the market sensitivity of the security; the nonsystematic risk of the security D. the nonsystematic risk of the security; the systematic risk of the security E. the total return on the security; the nonsystematic risk of the security The weight of the mispriced security in the active portfolio depends on the degree of mispricing (alpha) in proportion to the nonsystematic risk added by holding the security. Difficulty: Moderate 36. One property of a risky portfolio that combines an active portfolio of mispriced securities with a market portfolio is that, when optimized, its squared Sharpe measure increases by the square of the active portfolio's When optimized, a property of the overall risky portfolio is that its squared Sharpe measure increases by the square of the active portfolio's information ratio. Difficulty: Moderate 37. A purely passive strategy A purely passive strategy uses only index funds and keeps the proportions constant when there are changes in perceived market conditions. Difficulty: Moderate 27-19
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Chapter 27 - The Theory of Active Portfolio Management 27-20
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Chapter 27 - The Theory of Active Portfolio Management 38. A manager who uses the mean-variance theory to construct an optimal portfolio will satisfy The optimal portfolio will be the one with the highest reward-to-variability ratio. Investors can choose for themselves how they want to combine this portfolio with the risk-free asset to take on more or less risk. Difficulty: Easy
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