TOPIC THREE PORTFOLIO THEORY AND CAPITAL ASSET PRICING MODEL (CAPM) Reading : BKM: Chapters 7&9 Pilbeam: Chapters 7&8 OUTLINE Section I: The concept of portfolio and diversification Calculate portfolio expected return Measuring portfolio total risk: variance and standard deviation Market portfolio Measuring systematic risk: Beta Section II: Markowitz Portfolio Theory Efficient portfolio and Efficient Frontier Capital Asset Pricing Model - CAPM CAPM lines: CML and SML
Words: 5021 - Pages: 21
Equal-Weighted Portfolio Outperform Value- and Price-Weighted Portfolios March 2012 Yuliya Plyakha Raman Uppal Goethe University Frankfurt EDHEC Business School Grigory Vilkov Goethe University Frankfurt Abstract We compare the performance of equal-, value-, and price-weighted portfolios of stocks in the major U.S. equity indices over the last four decades. We find that the equal-weighted portfolio with monthly rebalancing outperforms the value- and price-weighted portfolios in terms
Words: 15595 - Pages: 63
allocation program that currently includes only stocks, bonds, and cash alternatives (risk-free-money market investments), which of the properties of real estate returns affect portfolio risk? Explain. a. Standard Deviation b. Expected Return c. Correlation with the returns of other assets (a) and (c). The portfolio risk (standard deviation) calculation now includes the variance of real estate returns and correlation between real estate and stocks the correlation between real estate
Words: 4199 - Pages: 17
Problem 1: Marketing selection problem Hua Ann is running for reelection as mayor of a small town in Alabama. Khurai Jum, Ann’s campaign manager during this election, is planning the marketing campaign, and there is some stiff competition. Jum has selected four ways to advertise: telvevision ads, radio ads, billboards, and newspaper ads. The costs of these, the audience reached by each type of ad, and the maximum number of each is shown in the following table TYPE OF AD | COST PER AD | AUDIENCE
Words: 618 - Pages: 3
EXECUTIVE SUMMARY Today’s business world is so much competitive as a result every person has to be very cautious while taking an investment decision. Various types of analysis are performed by the investors to choose the most perfect securities. In a portfolio construction a person analysis the whole macro as well as micro economic scenario of a nation, in industry analysis the industry condition, movement is closely examined and in a company analysis the specific firm is analyzed to take a decision. This
Words: 2939 - Pages: 12
e 1. The weighted average of the firm’s costs of equity, preferred stock, and after tax debt is the: a. reward to risk ratio for the firm. b. expected capital gains yield for the stock. c. expected capital gains yield for the firm. d. portfolio beta for the firm. e. weighted average cost of capital (WACC). Difficulty level: Easy CAPM b 2. If the CAPM is used to estimate the cost of equity capital, the expected excess market return is equal to the: a. return on the stock
Words: 3901 - Pages: 16
thanks to all my faculty members, friends and laity who co-operated with me in completion of this dissertation. D.GANGADEVI SUMMARY Portfolio management is a process of encompassing many activities of investment assets and securities. It is a dynamic and flexible concept and involves regular and systematic analysis, judgment, and action. A combination of securities held together will give
Words: 14791 - Pages: 60
original investment. Efficient frontier: The set of portfolios that have the highest expected return for any given level of risk is known as the efficient frontier. Investors aim to find the efficient frontier which represents portfolios with highest return for a given level of risk. Optimal portfolio: The optimal portfolio is the point of tangency between the efficient set and the invester’s risk-return indifference curve Market portfolio: a portfolio made up of all the assets in the economy with weights
Words: 1906 - Pages: 8
attractive asset to hold as a part of a portfolio. If the correlation between gold and stocks is sufficiently low, gold will be held as a component in a portfolio, specifically, the optimal tangency portfolio. Efficient frontier Efficient frontier b. Given the data above, re-answer part (a) with the additional assumption that the correlation coefficient between gold and stocks equals 1.0. Draw a graph illustrating why one would or would not hold gold in one’s portfolio. Could this set of assumptions
Words: 2349 - Pages: 10
The Portfolio Theory also known as Modern Portfolio Theory was first developed by Harry Markowitz. He had introduced the theory in his paper ‘Portfolio Selection’ which was published in the Journal of Finance in 1952. In 1990, he along with Merton Miller and William Sharpe won the Nobel Prize in Economic Sciences for the Theory. The theory suggests a hypothesis on the basis of which, expected return on a portfolio for a given amount of portfolio risk is attempted to be maximized or alternately the
Words: 8380 - Pages: 34
