Hence beta measures the marginal contribution of a

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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) risk-free 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 Result-1 What is the consequence under the assumptions of unique (and equal) lending/borrowing risk-free 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.

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