Assume that stock market returns do not resemble a single-index structure.An investment fund analyzes 40 stocks in order to construct a mean-variance efficient portfolio constrained by 40 investments.They will need to calculate _____________ expected returns and ___________ variances of returns.
A)100; 100
B)40; 40
C)4950; 100
D)4950; 4950

Question

Quizplus · Accepted Answer

Since the returns do not resemble a single-index structure, there is no need to calculate the expected returns and variances of returns for any additional indices or factors. Therefore, the investment fund only needs to calculate the expected returns and variances for the 40 individual stocks in the portfolio. Thus, the answer is B- 40; 40.

Assume That Stock Market Returns Do Not Resemble a Single-Index