Consider the treynor black model the alpha of an

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24. Consider the Treynor-Black model. The alpha of an active portfolio is 1%. The expected return on the market index is 16%. The variance of the return on the market portfolio is 4%. The nonsystematic variance of the active portfolio is 1%. The risk-free rate of return is 8%. The beta of the active portfolio is 1.05. The optimal proportion to invest in the active portfolio is __________. A. 48.7% B. 50.0% C. 51.3% D. 100.0% E. none of the above w O = [1%/1%]/[(16% - 8%)/4%] = 0.5; w* = 0.5/[1 + (1 - 1.05)0.5] = 0.513, or 51.3%. Difficulty: Difficult 25. There appears to be a role for a theory of active portfolio management because Statements A, B, and C are true. Difficulty: Easy 27-14
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Chapter 27 - The Theory of Active Portfolio Management 26. The Treynor-Black model A and C are true for the model. Difficulty: Easy 27. Which of the following are not true regarding the Treynor-Black model A and C are true for the model. Difficulty: Easy 28. To improve future analyst forecasts using the statistical properties of past forecasts, a regression model can be fitted to past forecasts. The intercept of the regression is a __________ coefficient, and the regression beta represents a __________ coefficient. A. bias, precision B. bias, bias C. precision, precision D. precision, bias E. none of the above The estimated equation adjusts future forecasts for direction and magnitude of bias and degree of imprecision in past forecasts. Difficulty: Moderate 27-15
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Chapter 27 - The Theory of Active Portfolio Management 29. A purely passive strategy is defined as A purely passive strategy is one that calls for no market analysis. Difficulty: Easy
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