Assume that stock market returns do follow a single-index structure.An investment fund analyzes 175 stocks in order to construct a mean-variance efficient portfolio constrained by 175 investments.They will need to calculate ________ estimates of expected returns and ________ estimates of sensitivity coefficients to the macroeconomic factor.
A)175; 15,225
B)175; 175
C)15,225; 175
D)15,225; 15,225
E)none of the above

Question

Quizplus · Accepted Answer

Since the fund is constructing a mean-variance efficient portfolio constrained by 175 investments and assumes that stock market returns follow a single-index structure, they will need to calculate 175 estimates of expected returns for the stocks (one for each) and 175 estimates of sensitivity coefficients to the macroeconomic factor (again one for each). Therefore, the correct answer is B.

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