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Yet another Treynor Black Model question

The question is as follows:

You are using the Treynor-Black Model for security selection. The optimal portfolio consists 40% of actively managed portfolio with an expected return of 10%. The rest is allocated to the indexed portfolio, which has an expected return of 6%. Your client's requirements are for a portfolio that has an expected return of 10%. Which of the following is the ideal way to achieve this?

A Allocate 100% of the client's funds to the active portfolio
B Allocate 100% of client's funds to the indexed portfolio and borrow money to leverage
C Keep the optimal portfolio allocation the same and leverage the optimal portfolio by borrowing.

Based on my understanding, if 40/60 is the optimum portfolio which would only produce an expected return of 7.6%, you have to alter the weightings towards the actively managed portfolio, but the point is if 40/60 is the optimum how would I be able to adjust it?


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