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Lecture9_Slides_6perpage - FINS1613 BUSINESSFINANCE...

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1 FINS 1613 BUSINESS FINANCE Dr. Gloria Y. Tian School of Banking & Finance [email protected] Recap: Capital Asset Pricing Model (CAPM) Lecture 09 Diversification and Risks o Two types of risks o Diversification benefit: risk reduction (which risk can be diversified away?) 3 Portfolio expected return and risk Portfolio return depends on each individual security’s weight and its expected return Portfolio risk depends on each individual security’s weight and its systematic risk CAPM: E[Ri] = Rf + β i × (E[R M ] – Rf) Security Market Line (SML) Lecture 09 4 C OST OF C APITAL R AISING C APITAL RTBWJ Chapters 12 & 15 Cost of Capital & Raising Capital 6
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