If an analyst is considering 40 securities for inclusion in a portfolio and is using the covariance approach, she must estimate total parameters numbering
A) 860.
B) 780.
C) 80.
D) 800.

Question

Quizplus · Accepted Answer

To estimate the total parameters using the covariance approach, the analyst needs to estimate 40 expected returns and 40 variances, plus 780 covariances (calculated as 40*39/2). This totals to 860 parameters (40 + 40 + 780).

If an Analyst Is Considering 40 Securities for Inclusion in a Portfolio