Assume that stock market returns do not resemble a single-index structure.An investment fund analyzes 125 stocks in order to construct a mean-variance efficient portfolio constrained by 125 investments.They will need to calculate ____________ covariances.
A)90
B)125
C)7,750
D)15,625
E)none of the above

Question

Quizplus · Accepted Answer

Since the investment fund is analyzing 125 stocks, the total number of pairwise covariances that need to be calculated is given by the formula:

n(n-1)/2

where n is the number of stocks.

Substituting the value, we get:

125(125-1)/2 = 7,750

Therefore, the investment fund will need to calculate 7,750 covariances. Option C is the correct answer.

Assume That Stock Market Returns Do Not Resemble a Single-Index