7 Optimal Risky Portfolios

7 Optimal Risky Portfolios - Optimal Risky Portfolios 1...

Info iconThis preview shows pages 1–8. Sign up to view the full content.

View Full Document Right Arrow Icon
Comm367 1 Optimal Risky Portfolios
Background image of page 1

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

View Full DocumentRight Arrow Icon
Comm367 2 Chapter Summary Objectives: To examine portfolio risk u Portfolio risk and diversification u The two security portfolio u Extending to n securities u The role of correlation The optimal portfolio u The minimum variance frontier u The minimum variance portfolio u The Capital Allocation Line
Background image of page 2
Comm367 3 Figure 7.1 Portfolio Risk as a Function of the Number of Stocks in the Portfolio
Background image of page 3

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

View Full DocumentRight Arrow Icon
Comm367 4 Figure 7.2 Portfolio Diversification
Background image of page 4
Comm367 5 Table 7.1 Descriptive Statistics for Two Mutual Funds
Background image of page 5

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

View Full DocumentRight Arrow Icon
Comm367 6 w1 = proportion of funds in Security 1 w2 = proportion of funds in Security 2 r1   = expected return on Security 1 r2   = expected return on Security 2 1 w n 1 i i = = Two-Security Portfolio: Return 2 2 1 1 P r w r w r + =
Background image of page 6
Comm367 7 σ 12 = variance of Security 1 σ 22 = variance of Security 2 Cov(r1,r2) = covariance of returns for Security 1 and Security 2 Two-Security Portfolio: Risk ) r , r ( Cov w w 2 w w 2 1 2 1 2 2 2 2 2 1 2 1 2 p + σ + σ = σ
Background image of page 7

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

View Full DocumentRight Arrow Icon
Image of page 8
This is the end of the preview. Sign up to access the rest of the document.

Page1 / 27

7 Optimal Risky Portfolios - Optimal Risky Portfolios 1...

This preview shows document pages 1 - 8. Sign up to view the full document.

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