A portfolio management organization analyzes 60 stocks and constructs a mean-variance efficient portfolio using only these 60 securities. a. How many estimates of expected returns, variances, and covariances are needed to optimize this portfolio

Explanation:

estimates of expected returns referred to the returns, profit the investors can be expecting on an investment

Given :

60 stocks

60 securities

Then n= 60

For the portfolio to be optimized

There would be

✓60 estimates of means

✓60 estimates of variances

To Calculate estimates of covariances we use below expresions

✓(n^2-n) / 2

[(60^2)-60]/2

= (3600-60)/2 = 1770

= 1770 estimates of covariances

✓(n^2+3n )/ 2

[(60^3)+3(60)]/2

(21600+180)/2= 1890

= 1890 estimates

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