Assume that stock market returns do follow a single-index structure.An investment fund analyzes 217 stocks in order to construct a mean-variance efficient portfolio constrained by 217 investments.They will need to calculate ________ estimates of expected returns and ________ estimates of sensitivity coefficients to the macroeconomic factor.
A)217; 47,089
B)217; 217
C)47,089; 217
D)47,089; 47,089

Question

Quizplus · Accepted Answer

Since the stock market returns follow a single-index structure, the investment fund will only need to calculate one estimate of sensitivity coefficient to the macroeconomic factor (i.e., the beta coefficient) for each of the 217 stocks. Therefore, the total number of sensitivity coefficient estimates needed is the same as the number of stocks, which is 217. Similarly, the investment fund will need to estimate the expected return for each of the 217 stocks, leading to a total of 217 estimates of expected returns. Hence, the correct choice is B.

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