For the market model with 40 securities, the number of parameters the analyst must estimate for forecasting the portfolio return is
A) 41.
B) 780.
C) 81.
D) 1.

Question

Quizplus · Accepted Answer

For a market model with 40 securities, the analyst must estimate the beta coefficient for each security (40 parameters) as well as the intercept term (1 parameter). Therefore, the total number of parameters that must be estimated is 40 + 1 = 41.

For the Market Model with 40 Securities, the Number of Parameters