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Unformatted text preview: market return is zero, note that the expected value of the "unique" risk of the i securities is zero, and find that the expected return on the portfolio is merely the average required return on each of the N securities: and the variance of the portfolio is simply the expected value of the squared difference between the realized return and on the portfolio and the expected return on the portfolio: Now note that (i) the individual u i 's have no correlation with each other, and (ii) the excess return on the market has no correlation with any of the u i 's, so the equation above reduces to: As N grows large, the second term shrinks down toward zero, and so the variance and standard deviation are approximately:...
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This note was uploaded on 11/10/2011 for the course GEB GEB1011 taught by Professor Henn during the Fall '10 term at Broward College.
- Fall '10