States Poor Below Average Average Above Average Excellent
Prob of state S fund return B fund return Return on portfolio prob*return Dev 0.3 -10 30 2 0.6 -10.72 0.1 5 15 8 0.8 -4.72 0.2 10 8 9.4 1.88 -3.32 0.1 20 3 14.9 1.49 2.18 0.3 40 -5 26.5 7.95
Review for Mid-term
Fall 2007 - FI 320
Chapter 3
Buying on margin
Current
initial margin requirement Maintenance margin
Short Sales
Covering
the short position Exchange rules
Chapter 5
Arithmetic average, geometric average HPR Scenar
Chapter 6 Part II
Efficient Diversification
Learning Objectives
Learn how covariance and correlation affect the power of diversification to reduce portfolio risk Construct efficient portfolios Calculate the composition of the optimal risky portf
Chapter 6 Part I
Efficient Diversification
Learning Objectives
Learn how covariance and correlation affect the power of diversification to reduce portfolio risk Construct efficient portfolios Calculate the composition of the optimal risky portfo
Chapter 5: Part I
Risk and Return
Learning Objectives
Measuring Investment Returns
Single period Multiple periods
Risk and Measures of Risk Risk Premiums Risk Aversion
Rates of Return: Single Period
HPR
P P0 D1 1 P0
HPR Holding Period R