Using a one-factor model to develop the efficient set of portfolios eliminates the need to estimate
A) expected returns for each security.
B) covariances for each pair of securities.
C) the sensitivity of each security.
D) the riskfree return.

Question

Quizplus · Accepted Answer

Using a one-factor model means that covariance between securities can be captured by just one factor. Therefore, only estimates for the factor (beta) and the risk-free rate are required. Expected returns for individual securities or the sensitivity of each security are not necessary in this type of model.

Using a One-Factor Model to Develop the Efficient Set of Portfolios