The Treynor-Black model assumes that
A)the objective of security analysis is to form an active portfolio of a limited number of mispriced securities.
B)the cost of less than full diversification comes from the nonsystematic risk of the mispriced stock.
C)the optimal weight of a mispriced security in the active portfolio is a function of the degree of mispricing, the market sensitivity of the security, and its degree of nonsystematic risk.
D)all of the above are true.
E)none of the above are true.

Question

Quizplus · Accepted Answer

The Treynor-Black model assumes all three statements listed in options A, B, and C are true. It seeks to form an active portfolio of a limited number of mispriced securities to outperform the market. It takes into account the cost of less than full diversification due to the nonsystematic risk of the mispriced stock. And finally, it determines the optimal weight of a mispriced security in the active portfolio based on the degree of mispricing, market sensitivity of the security, and its degree of nonsystematic risk.

The Treynor-Black Model Assumes That