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Unformatted text preview: s, each with wealth that is small
compared to the total wealth of all investors
investors are price-takers
unlimited borrowing and lending at the unique (and equal)
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 Result-1
What is the consequence under the assumptions of
unique (and equal) lending/borrowing risk-free rate, and
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