Asked by
Elizabeth Kitterman
on Nov 04, 2024
Verified
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
Treynor-Black Model
An optimization tool used by portfolio managers to balance the trade-off between risk and return by combining actively selected securities with a passively managed market portfolio.
Nonsystematic Risk
The risk associated with a specific issuer of a security, industry, or sector, which can be mitigated through diversification.
Systematic Risk
The risk inherent to the entire market or entire market segment, which cannot be mitigated through diversification.
- Describe the optimal weighting of securities within an active portfolio according to the Treynor-Black model.
Verified Answer
BW
Learning Objectives
- Describe the optimal weighting of securities within an active portfolio according to the Treynor-Black model.