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

Question

Quizplus · Accepted Answer

The Treynor-Black model suggests that the weight of a security in the active portfolio is determined by the ratio of the degree of mispricing (how much the security's price is expected to deviate from its fair value) to the nonsystematic risk of the security (the risk that is not related to the market's overall movements).

According to the Treynor-Black Model, the Weight of a Security