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RSM 330 - Tutorial 3 - Oct 13

RSM 330 - Tutorial 3 - Oct 13 - RSM 330 Investments...

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RSM 330 Investments Tutorial 3 – October 13th
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Plan for today Market news – the world is fixed…not Review of topics Modern Portfolio theory Diversification Practice problems
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Market News Continued optimism in Europe – should there be? S&P500 up 10% over the last week… Employment improving?? Earnings season has begun – AA, JPM, Goooooogle Where do we go from here… http://individual.utoronto.ca/parrent/DailyRoll/
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Modern Portfolio theory How to best combine risky assets Create investment opportunity sets – combinations of securities Theory based on the principle of diversification
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Diversification
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Diversification II E Investment Opportunity Set Stocks Bonds S
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Diversification III ρ = -0.5 S E Stocks Bonds ρ = 1 ρ = -1 ρ = 0
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Many securities… With many securities our investment set becomes an area The combinations that minimize risk given a certain return lie on the efficient frontier (or maximize return for a given risk) E S Efficient Frontier Investment Opportunity Set
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  • Fall '11
  • Stapleton
  • Modern portfolio theory, EFFICIENT FRONTIER, investment opportunity, Tangency Portfolio, RSM 330 Investments

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