The Total Number of Variance and Covariance Terms in Portfolio

question 28

Multiple Choice

The total number of variance and covariance terms in portfolio is N². How many of these would be (including non-unique) covariance's?

• A) N B) N²
• B) N²- N
• C) N²- N/2

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Definitions:

Special-Interest Effect

The impact of a small, concentrated interest group on policy-making, often at the expense of broader public interest.

Principal-Agent Problem

A dilemma in economics where one party (the agent) is expected to act in the best interest of another (the principal) but may not do so due to conflicting interests.

Adverse Selection Effect

A situation in which asymmetric information leads to the selection of undesired risks, often seen in insurance markets where customers know more about their health status than insurers.