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

question 30

Multiple Choice

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

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Definitions:

Trading

The act of buying and selling securities, commodities, or other financial instruments in financial markets with the aim of profiting from price movements.

Trading Securities

Financial instruments that are purchased and held primarily for selling them in the near term, with the objective of generating profits on short-term price differences.

Available-For-Sale Securities

Debt or equity securities not classified as held-to-maturity or trading securities, measured at fair value with changes recognized in other comprehensive income.

Realized Gain

is the profit made from selling an asset at a higher price than its purchase cost, officially recognized once the transaction is completed.