You are using the Treynor-Black method to build an optimal risky portfolio. The entire universe of mispriced securities is Stocks A, B, and C. You estimate the following input list for the three: Input List of Investable Universe   Stock A Stock B Stock C Alpha 2.0% 0.7% -0.9% Firm-Specific Risk 40% 60% 90% Beta 1.6 0.5 1.4 What is the initial position in the active portfolio for Stock A?

You choose to construct a portfolio from the Stock A, Stock B, and the risk-free investment. You make the following estimates of the three: Estimates of Alpha, Beta, and Firm-Specific Risk   Alpha Beta Firm-Specific Std Dev Stock A 1.50% 1.20 70.00% Stock B 0.75% 1.50 65.00% Risk-Free Investment 0.00% 0.00 0.00% You invest 30% of your portfolio in Stock A, 30% in Stock B, and the remaining 40% in the risk-free investment. What is your portfolio’s alpha?  

You are using the Treynor-Black method to build an optimal risky portfolio. The entire universe of mispriced securities is Stocks A, B, and C. You estimate the following input list for the three: Input List of Investable Universe   Stock A Stock B Stock C Alpha 1.0% -0.5% 0.9% Firm-Specific Risk 60% 50% 40% Beta 1.3 1.5 0.8 What is the initial position in the active portfolio for Stock C?

The stock of a private company will pay each shareholder $0,000 each year in perpetuity. You believe their beta is . If the market risk premium is % and the risk-free rate is %, what is the value of the shareholder’s stock? Enter your answer as a number of dollars, rounded to the nearest dollar.

If the CAPM is correct, which of the following would have the lowest risk premium?

Challenge Use the CAPM and the following assumptions to estimate the expected return of the given stock for the next year. The risk-free rate is % All investors have quadratic utility with the average investor’s risk aversion index of The standard deviation of the market portfolio is % The predicted beta is found with the following prediction model:

Define the Treynor-Black method for portfolio construction.

Consider the following monthly returns for a stock, the market portfolio, and the risk-free investment over the last 12 months: Monthly Returns of a Stock, the Market Portfolio, and the Risk-Free Investment Month Stock Market Risk-Free 1 % % % 2 % % % 3 % % % 4 % % % 5 % % % 6 % % % 7 % % % 8 % % % 9 % % % 10 % % % 11 % % % 12 % % %   Assuming the single-factor model is true, what was the annualized firm-specific risk over the last twelve months for the stock? Enter your annualized firm-specific risk as a percentage, rounded to the nearest 0.01% (e.g., for 0.12345, enter 12.35).

In the context of the single-factor model, which of the following is a cyclical stock?

Suppose the simple CAPM is correct and investors have quadratic utility. What is the market risk premium if the risk-aversion index of the average investor is 3.0 and the market portfolio risk (standard deviation) is 20%?