i) In the exam, will we be told to use n-1 or use n as the denominator for veriance? Or are we suppose to judge for ourselves? ii) I don't get the point of calculating the error term variances in the single index model, using the original variances, then using that answer to work back the original variances. In the final part of the solution, the two variances differ because the covariances are different; where is the new covariance used in calculating the variance of the new portfolio? thanks
Thanks Dukerio I cant even remember I asked this question. I'll need some time to refresh myself here.. Cheeers
