A wealth manager computed the following stats of an active ETF to add to a risky...

 

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A wealth manager computed the following stats of an active ETF to add to a risky portfolio. Compute the optimal weight of the ETF applying the single index model (Treynor and Black(1973)). Market variance is 0.01 Active ETF Alpha 2% Beta 1.5 Firm-specific risk 0.06 Risky Portfolio. 1% 1.2 0.03 A wealth manager computed the following stats of an active ETF to add to a risky portfolio. Compute the optimal weight of the ETF applying the single index model (Treynor and Black(1973)). Market variance is 0.01 Active ETF Alpha 2% Beta 1.5 Firm-specific risk 0.06 Risky Portfolio. 1% 1.2 0.03

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To compute the optimal weight of the ETF using the single index model Treynor and Black 1973 we first need to calculate the expected excess return of ... View the full answer