When using the market model for portfolio development, the analyst assumes that the correlation between each security's random error is
A) .5.
B) 0.
C) -.5.
D) -1.

Name: When using the market model for portfolio development, the analyst assumes that the correlation between each security's random error is A) .5. B) 0. C) -.5. D) -1.
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Question

Quizplus · Accepted Answer

The market model assumes that each security's random error is uncorrelated with other securities, hence the correlation should be 0.

When Using the Market Model for Portfolio Development, the Analyst