Assume that stock market returns do follow a single-index structure.An investment fund analyzes 60 stocks in order to construct a mean-variance efficient portfolio constrained by 60 investments.They will need to calculate ________ estimates of expected returns and ________ estimates of sensitivity coefficients to the macroeconomic factor.
A)200; 19,900
B)200; 200
C)60; 60
D)19,900; 19.900

Question

Quizplus · Accepted Answer

The investment fund only needs to calculate 60 estimates of expected returns and 60 estimates of sensitivity coefficients since they are analyzing 60 stocks. The number of estimates needed does not depend on the size of the investment portfolio constraint, and it is not necessary to calculate sensitivity coefficients for every possible macroeconomic factor as the question only mentions a single-index structure.

Assume That Stock Market Returns Do Follow a Single-Index Structure