If the index model is valid,_________ would be helpful in determining the covariance between assets GM and GE. A)β_GM B)β_GE C)β_M D)all of the above E)none of the above

Question

Quizplus · Accepted Answer

The index model is a single-factor model that assumes that the return on an asset is linearly related to the return on the market portfolio. The beta of an asset is a measure of the sensitivity of the asset's return to the return on the market portfolio. Therefore, if the index model is valid, the betas of GM and GE would be helpful in determining the covariance between the two assets.

If the Index Model Is Valid,_________ Would Be Helpful in Determining