slides11 - 11. CAPM (continued) In these slides, we go into...

Info iconThis preview shows pages 1–5. Sign up to view the full content.

View Full Document Right Arrow Icon

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: 11. CAPM (continued) In these slides, we go into more detail about the CAPM , including a discussion of the efficient frontier . Getting started... Begin by reviewing the first several slides from the previous lecture. Recall that we supposed the existence of two possible assets avail- able to invest in, A and B : the expected return of A is E ( R A ) and the standard devia- tion is A . the expected return of B is E ( R B ) and the standard devia- tion is B . the correlation between the returns of A and B is . The portfolio with weights w A invested in asset A and w b invested in asset B has expected return E ( R p ) = w A E ( R A ) + w B E ( R B ) and variance 2 p = w 2 A 2 A + w 2 B 2 B + 2 w A w B A B 2 Draw figure of feasible set with two assets. 3 Constructing portfolios continued Now lets expand the set of possible assets. Suppose there are n risky assets. Risky asset i has expected return E ( R i ) and standard deviation i , and the correlation between assets i and j is ij . Suppose we form a portfolio with fraction w i of our invest- ment in asset i where n i =1 w i = 1 . Then E ( R p ) = n summationdisplay...
View Full Document

This note was uploaded on 03/31/2008 for the course FNCE 3010 taught by Professor Donchez,ro during the Fall '07 term at Colorado.

Page1 / 11

slides11 - 11. CAPM (continued) In these slides, we go into...

This preview shows document pages 1 - 5. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online