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
E)none of the above

Question

Quizplus · Accepted Answer

Since the investment fund assumes a single-index structure, they only need to estimate one expected return for the entire market (the index) and one sensitivity coefficient for each stock included in the portfolio. Therefore, they need to calculate 217 estimates of expected returns (one for each stock) and 217 estimates of sensitivity coefficients to the macroeconomic factor (one for each stock). Option B is the only choice that matches these requirements.

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