Markowitz

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Unformatted text preview: Chapter 11 of Corporate Finance Modern Portfolio Theory & Capital Asset Pricing Theory (CAPM) Lecture Notes for Actsc 372 - Fall 2011 Ken Seng Tan Department of Statistics and Actuarial Science University of Waterloo K.S. Tan/Actsc 372 F11 Modern Portfolio Theory & CAPM – p. 1 Topics Covered Risk and return (reward) tradeoffs, investment opportunity/feasible set and efficient portfolio two risky assets N risky assets one risk-free and one risky asset one risk-free and N risky assets Modern Portfolio Theory Markowitz portfolio theory (1952) mean-variance efficient portfolio Nobel Prize for Economics 1990 Capital Asset Pricing Theory (CAPM) William Sharpe (1964) ￿ Nobel Prize for Economics 1990 John Lintner (1965), Jan Mossin (1966) K.S. Tan/Actsc 372 F11 Modern Portfolio Theory & CAPM – p. 2 Types of Securities Treasury Bills (T-bills) Bonds Government bonds (Treasury bonds) Corporate bonds Stocks large, medium, small caps, index (S&P 500, TSX 300) riskfree (or riskless) vs risky assets riskfree rates: rf rate of return for investing in T-bills returns from other assets are commonly expressed as a “spread" in...
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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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