Question: Zack is using the Treynor and Black optimisation method. He has determined that the optimal weighting in the active portfolio is 76.19%. The active portfolio

Zack is using the Treynor and Black optimisation method. He has determined that the optimal weighting in the active portfolio is 76.19%. The active portfolio has a residual standard deviation of 5% and an alpha of 1.45%. The standard deviation of the market return is 12%. The risk-free rate is 0.5%. The active portfolio has a beta of one. (a) Calculate the expected return of the market portfolio. (3 marks)

(b) Calculate the standard deviation of the active portfolio.

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