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Consider the Treynor-Black model. The alpha of an active portfolio is 2%. The expected return on the market index is 7%. The variance of the
Consider the Treynor-Black model. The alpha of an active portfolio is 2%. The expected return on the market index is 7%. The variance of the return on the market portfolio is 0.04. The nonsystematic variance of the active portfolio is 0.02. The risk-free rate of return is 3.5%. The beta of the active portfolio is 1.15. What is the optimal proportion to invest in the active portfolio?
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