Assume that stock market returns do follow a single-index structure. An investment fund analyzes 217 stocks in order to construct a mean-variance efficient portfolio constrained by 217 investments. They will need to calculate ________ estimates of expected returns and ________ estimates of sensitivity coefficients to the macroeconomic factor.
A) 217; 47,089
B) 217; 217
C) 47,089; 217
D) 47,089; 47,089
E) None of the options are correct.

Question

Quizplus · Accepted Answer

In a single-index model, each stock's return is related to a single macroeconomic factor. Therefore, for 217 stocks, they would need to calculate 217 estimates of expected returns (one for each stock) and 217 estimates of sensitivity coefficients (beta values) to the macroeconomic factor, one for each stock as well.

Assume That Stock Market Returns Do Follow a Single-Index Structure