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

question 14

Multiple Choice

Assume that stock market returns do follow a single-index structure. An investment fund analyzes 200 stocks in order to construct a mean-variance efficient portfolio constrained by 200 investments. They will need to calculate ________ estimates of expected returns and ________ estimates of sensitivity coefficients to the macroeconomic factor.

• A) 200; 19,900
• B) 200; 200
• C) 19,900; 200
• D) 19,900; 19.900

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Definitions:

Average Operating Assets

The average value of the assets involved or used in the operating activities of a company over a given period, typically calculated as the average of the opening and closing balances of these assets.

Residual Income

Earnings that exceed the minimum required return on investment; it's what remains after all costs and expenses have been deducted.

Return on Investment

A performance measure used to evaluate the efficiency of an investment or compare the efficiency of a number of different investments, calculated as net profit divided by the cost of the investment.

Gross Margin

The difference between revenue and cost of goods sold, divided by revenue, expressed as a percentage.