{[ promptMessage ]}

Bookmark it

{[ promptMessage ]}

Concepts Checks 2 - Concepts Checks 2 Portfolio Theory...

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

View Full Document Right Arrow Icon
Concepts Checks 2 Portfolio Theory
Background image of page 1

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

View Full Document Right Arrow Icon
Definitions & Notation Notation: P: A risky portfolio, consisting of 1 or more risky assets f: A risk-free asset C: A complete portfolio, consisting of a percentage investment allocation y in a risky portfolio P and a percentage investment allocation (1 – y) in the risk-free asset f.
Background image of page 2
Definitions & Notation - 2 Expected Returns & Risk The expected return of the risk-free asset f is a certain return & is denoted r f The expected return of the risky portfolio P is denoted by E(r P ) with risk σ P Observe that E(r P ) = r f + (E(r P ) – r f ) The term (E(r P ) – r f ) is the risk premium for portfolio P The expected return of the Complete portfolio C is denoted by E(r C ) with risk σ C Observe that E(r C ) = r f + y (E(r P ) – r f ) The term y (E(r P ) – r f ) is the risk premium for the complete portfolio C
Background image of page 3

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

View Full Document Right Arrow Icon
Concepts & Definitions The Capital Allocation Line (CAL) shows the combinations of risk & return that are possible
Background image of page 4
Image of page 5
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}