Exam 27: The Theory of Active Portfolio Management

Consider the Treynor-Black model.The alpha of an active portfolio is 2%.The expected return on the market index is 16%.The variance of 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.The optimal proportion to invest in the active portfolio is

The Treynor-Black model requires estimates of

To determine the optimal risky portfolio in the Treynor-Black model, macroeconomic forecasts are used for the _________, and composite forecasts are used for the __________.

The Black-Litterman model and Treynor-Black model are

Consider these two investment strategies: Strategy __________ is the dominant strategy because __________.

A purely passive strategy

Benchmark risk

Active portfolio management consists of

Passive portfolio management consists of

Consider the Treynor-Black model.The alpha of an active portfolio is 2%.The expected return on the market index is 12%.The variance of the return on the market portfolio is 4%.The nonsystematic variance of the active portfolio is 2%.The risk-free rate of return is 3%.The beta of the active portfolio is 1.15.The optimal proportion to invest in the active portfolio is

A manager who uses the mean-variance theory to construct an optimal portfolio will satisfy

According to the Treynor-Black model, the weight of a security in the active portfolio depends on the ratio of __________ to __________.

Kane, Marcus, and Trippi (1999) show that the annualized fee that investors should be willing to pay for active management, over and above the fee charged by a passive index fund, depends on I) the investor's coefficient of risk aversion. II. the value of the at-the-money call option on the market portfolio. III. the value of the out-of-the-money call option on the market portfolio. IV. the precision of the security analyst. V. the distribution of the squared information ratio in the universe of securities.

Ideally, clients would like to invest with the portfolio manager who has

Absent research, you should assume the alpha of a stock is

The Treynor-Black model

Tracking error is defined as

The Black-Litterman model is geared toward ____________ while the Treynor-Black model is geared toward ____________.

The Treynor-Black model is a model that shows how an investment manager can use security analysis and statistics to construct

In the Treynor-Black model,