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Unformatted text preview: s, each with wealth that is small
compared to the total wealth of all investors
investors are pricetakers
unlimited borrowing and lending at the unique (and equal)
riskfree rate
homogeneous expectations (or same inputs µ and Σ)
this does not imply investors have the same degree of
risk aversion K.S. Tan/Actsc 372 F11 Modern Portfolio Theory & CAPM – p. 46 Market Portfolio
The economy has N risky assets.
is deﬁned as a portfolio of all risky assets
all securities included in proportion to their M.V.
Pi : current market price per share of risky asset i
ni : number of outstanding shares of risky asset i
Market portfolio market capitalization for asset i: ni Pi
total market capitalization: N
ni Pi i=1 ni Pi
capitalization weights for asset i: N
i=1 ni Pi K.S. Tan/Actsc 372 F11 Modern Portfolio Theory & CAPM – p. 47 Result1
What is the consequence under the assumptions of
unique (and equal) lending/borrowing riskfree rate, and
homogeneous expectations?
In equilibrium: One F...
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This note was uploaded on 01/04/2012 for the course ACTSC 372 taught by Professor Maryhardy during the Fall '09 term at Waterloo.
 Fall '09
 MARYHARDY
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