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Treynor Black Model: Index (M) 0.08 0.0036 1.3333 Securities 1 0.02 0.2 0.0004 2 0.02 0.3 0.0016 3 0.01 0.6 0.0025

The document presents the inputs and calculations for the Treynor Black model. It provides the risk-free rate, market index return and variance. It then lists the expected returns, betas and variances for 3 securities. The optimal weights, returns and risks are calculated for the securities portfolio, active portfolio and optimal risky portfolio. A consistency check is performed to ensure the optimal risky portfolio variance equals the sum of the market variance and active portfolio return over variance.

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MS Nag
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99 views

Treynor Black Model: Index (M) 0.08 0.0036 1.3333 Securities 1 0.02 0.2 0.0004 2 0.02 0.3 0.0016 3 0.01 0.6 0.0025

The document presents the inputs and calculations for the Treynor Black model. It provides the risk-free rate, market index return and variance. It then lists the expected returns, betas and variances for 3 securities. The optimal weights, returns and risks are calculated for the securities portfolio, active portfolio and optimal risky portfolio. A consistency check is performed to ensure the optimal risky portfolio variance equals the sum of the market variance and active portfolio return over variance.

Uploaded by

MS Nag
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as XLSX, PDF, TXT or read online on Scribd
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TREYNOR BLACK MODEL

INPUTS
RM 2 SM
Index (M) 0.08 0.0036 1.3333

Securities i betai 2(ei)


1 0.02 0.2 0.0004
2 0.02 0.3 0.0016
3 0.01 0.6 0.0025

SOLUTION
Securities / 2(ei) wi wi2
1
2
3
SUM ****

Active Portfolio A
betaA 2(eA) 2

wA0 wA* 1-wA*

Optimal Risky Portfolio (P)


P betaP 2(eP) P2 SP

Consistency Check is SP2 equal to the sum of SM2 and A/ 2(eA)?


SP2 SM2 / 2(eA) Sum
TREYNOR BLACK MODEL
INPUTS 3%
RM 2 SM
Index (M) 0.08 0.0036 1.3333
SOLUTION SUMMARY
Securities i betai (ei)
2
0.9163
1 0.02 0.2 0.0004 1.7515
2 0.02 0.3 0.0016
3 0.01 0.6 0.0025

SOLUTION
Securities / 2(ei) wi wi2 Risk Prem
1 50.00 0.75 0.5653 0.036
2 12.50 0.19 0.0353 0.044
3 4.00 0.06 0.0036 0.058
SUM 66.50 1.00

Active Portfolio A
betaA 2(eA) 2 Risk Prem
0.0194 0.2429 0.0003 0.0005 0.03883

wA0 wA* 1-wA*


2.9925 0.9163 0.0837

Optimal Risky Portfolio (P)


P betaP 2(eP) P2 Risk Prem
0.0178 0.3062 0.0002 0.0006 0.0423

SP2 SM2 / 2(eA) Sum


3.0678 1.7778 1.2900 3.0678
UTION SUMMARY
wA*
SP

2 Sharpe
0.0005 1.5435
0.0019 1.0031
0.0038 0.9414

Sharpe
1.7294

SP
1.7515

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