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

question 82

Multiple Choice

Assume that stock market returns do follow a single-index structure. An investment fund analyzes 500 stocks in order to construct a mean-variance efficient portfolio constrained by 500 investments. They will need to calculate ________ estimates of firm-specific variances and ________ estimate/estimates for the variance of the macroeconomic factor.

• A) 500; 1
• B) 500; 500
• C) 124,750; 1
• D) 124,750; 500
• E) 250,000; 500

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Definitions:

Marginal Revenue

The additional profit earned from the sale of an extra unit of a product or service.

Purely Competitive Firm

Describes a business that operates in a market where no single company can influence prices, due to the presence of many sellers offering identical products.

Output

The quantity of goods or services produced in a certain period of time by a person, machine, or industry.

Price Taker

A market participant who has no influence over the market price and must accept the prevailing market price for its products or services.