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Time Horizons
Planning Horizon
Total length of time for which
one plans usually lifetime based
on income for retirement
Decision Horizon
The length of time between
decisions for portfolio revision
Trading horizon
The minimum time interval
over which an investor can
revise a portfolio
Speculators and Hedgers
Speculators are investors who
take positions that increase
their exposure to certain
risks in the hope of
increasing their wealth.
Hedgers take positions to
reduce
their exposures.
A person can be a speculator on
some exposures and a
hedger on others.
Types of Probability
Objective probability:
Probability is determined by past measures or
history (of frequency)
Example Batting Average in August is .
312
the probability the player gets a hit is .312
Subjective probability
Probability is based on individual judgment
Different people assign different probabilities
Efficient Portfolios
An efficient portfolio is the best
return for a set level of risk
Or the lowest risk for a set level
of return
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 Spring '08
 LAPLANTE

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