The single-index model
A) greatly reduces the number of required calculations relative to those required by the Markowitz model.
B) enhances the understanding of systematic versus nonsystematic risk.
C) greatly increases the number of required calculations relative to those required by the Markowitz model.
D) greatly reduces the number of required calculations relative to those required by the Markowitz model and enhances the understanding of systematic versus nonsystematic risk.
E) enhances the understanding of systematic versus nonsystematic risk and greatly increases the number of required calculations relative to those required by the Markowitz model.

Question

Quizplus · Accepted Answer

The single-index model simplifies the calculation process compared to the Markowitz model by reducing the number of inputs needed for portfolio analysis, and it helps in understanding the difference between systematic and nonsystematic risk by attributing returns to market-wide factors and specific stock factors.

The Single-Index Model