{[ promptMessage ]}

Bookmark it

{[ promptMessage ]}

Risk and Return - the sea I can construct even worse...

Info icon This preview shows pages 1–2. Sign up to view the full content.

View Full Document Right Arrow Icon
Risk and Return Now let me move on to risk and return proper... "State of the World" Universal Utility Mega Manufacturing Exciting Exports Startup Semiconductor HH +20% +40% +40% +20% HT +0% +10% +50% -20% TH +10% +10% -30% -20% TT -10% -20% -20% +20% Suppose I am choosing portfolios from Mega Manufacturing and Startup Semiconductor: I get the highest return from Mega Manufacturing, but I can get a lower standard deviation--at not much cost in return--by starting to diversify. Suppose I diversify among the four different stocks:
Image of page 1

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

View Full Document Right Arrow Icon
I can construct a large number of truly, truly putrid portfolios (in fact, by throwing money into
Image of page 2
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: the sea I can construct even worse portfolios. ..) I can also get outside the frontier of the parallelogram defined by the risk/return characteristics of the individual stocks. .. Introducing lending and borrowing: Choose the portfolio S that just touches the line that goes through the riskfree-rate point and lies entirely to one side of the feasible portfolio set. Then borrow (and lend) until you get to the risk-return characteristics you want. .. Capital asset pricing model. .. ÿ...
View Full Document

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern