Suppose There Is a Theory That Several Things Influence the Price

question 95

Multiple Choice

Suppose there is a theory that several things influence the price of fish in Halifax,one of which is the weather during the fishing season.When examining the determinants of the price of fish,the weather is

• A)an endogenous variable,as it influences the price of fish.
• B)an exogenous variable,as it is determined outside the theory.
• C)a stock,as it influences the quantity of fish caught.
• D)an act of God and,therefore,has no legitimate connection with the theory.
• E)an endogenous variable,as it is determined within the theory.

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Definitions:

Single-Index Model

A model that represents the returns of a portfolio or asset as linearly dependent on the returns of a single market index, simplifying the evaluation of portfolio risk.

Markowitz Model

A portfolio optimization theory that demonstrates how to achieve the best portfolio allocation to maximize return for a given level of risk through diversification.

Systematic Risk

The risk inherent to the entire market or entire market segment, which cannot be eliminated through diversification.