Diagrams of CAPM Chapter 10 figures. Correlation coefficient.

Slides:

Advertisements

Similar presentations

Multi-Factor asset pricing And more on the homework.

Advertisements

Analytical Methods for Lawyers (Finance) Risk Discount rate Capital Asset Pricing Model (CAPM) (last updated 20 Apr 09)

Measuring Portfolio Performance With Asset Pricing Models (Chapter 11) Risk-Adjusted Performance Measures Jensen Index Treynor Index Sharpe Index CAPM.

Chapter 8 Risk and Return. Topics Covered  Markowitz Portfolio Theory  Risk and Return Relationship  Testing the CAPM  CAPM Alternatives.

The Capital Asset Pricing Model. Review Review of portfolio diversification Capital Asset Pricing Model  Capital Market Line (CML)  Security Market.

Return, Risk, and the Security Market Line Return, Risk, and the Security Market Line.

Copyright © 2007 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin Return and Risk: The Capital Asset Pricing Model (CAPM) Chapter.

© 2003 The McGraw-Hill Companies, Inc. All rights reserved. Return, Risk, and the Security Market Line Chapter Thirteen.

Chapter Outline Expected Returns and Variances of a portfolio

LECTURE 5 : PORTFOLIO THEORY

Chapters 9 & 10 – MBA504 Risk and Returns Return Basics –Holding-Period Returns –Return Statistics Risk Statistics Return and Risk for Individual Securities.

Risk-Return Problems 7. Calculating Returns and Deviations Based on the following information, calculate the expected return and standard deviation for.

Diagrams of CAPM Chapter 10 figures. Investors need only two funds.  Figures 10.4, 10.5, and 10.6.

Jacoby, Stangeland and Wajeeh, Risk Return & The Capital Asset Pricing Model (CAPM) l To make “good” (i.e., value-maximizing) financial decisions,

Capital Asset Pricing Model Applied covariance: Project Part 1.

1 CHAPTER TWELVE ARBITRAGE PRICING THEORY. 2 Background Estimating expected return with the Asset Pricing Models of Modern FinanceEstimating expected.

QDai for FEUNL Finanças November 2. QDai for FEUNL Topics covered  Minimum variance portfolio  Efficient frontier  Systematic risk vs. Unsystematic.

Key Concepts and Skills

© K. Cuthbertson and D. Nitzsche Figures for Chapter 5 Mean-Variance Portfolio Theory and CAPM (Quantitative Financial Economics)

Expected Returns Expected returns are based on the probabilities of possible outcomes In this context, “expected” means average if the process is repeated.

Estimating betas and Security Market Line MGT 4850 Spring 2007 University of Lethbridge.

Copyright  2004 McGraw-Hill Australia Pty Ltd PPTs t/a Fundamentals of Corporate Finance 3e Ross, Thompson, Christensen, Westerfield and Jordan Slides.

Return and Risk: The Capital Asset Pricing Model Chapter 11 Copyright © 2010 by the McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin.

CHAPTER FOURTEEN WHY DIVERSIFY? © 2001 South-Western College Publishing.

11-1 Copyright © 2011 by the McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin.

© 2009 Cengage Learning/South-Western Risk, Return, and the Capital Asset Pricing Model Chapter 7.

Fourth Edition 1 Chapter 7 Capital Asset Pricing.

This module identifies the general determinants of common share prices. It begins by describing the relationships between the current price of a security,

0 Portfolio Managment Albert Lee Chun Proof of the Capital Asset Pricing Model Lecture 6.

1 Chapter 7 Portfolio Theory and Other Asset Pricing Models.

1 Chapter 2: Risk & Return Topics Basic risk & return concepts Stand-alone risk Portfolio (market) risk Relationship between risk and return.

Risk and Return and the Capital Asset Pricing Model (CAPM) For 9.220, Chapter.

Expected Return for Individual Stocks

Capital Asset Pricing Model

The Capital Asset Pricing Model (CAPM)

The Capital Asset Pricing Model

Return and Risk: The Capital-Asset Pricing Model (CAPM) Expected Returns (Single assets & Portfolios), Variance, Diversification, Efficient Set, Market.

CHAPTER 8 Risk and Rates of Return

Copyright © 2009 Pearson Prentice Hall. All rights reserved. Chapter 5 Risk and Return.

McGraw-Hill © 2004 The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin Risk and Return Chapter 11.

11-1 Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Fundamentals of Corporate Finance 4e, by Ross, Thompson, Christensen, Westerfield & Jordan.

Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1999 Corporate Finance Fifth Edition Ross Jaffe Westerfield Chapter 10 Return and Risk: The.

13-0 Figure 13.8A – Portfolio Expected Returns and Betas RfRf LO4 © 2013 McGraw-Hill Ryerson Limited.

Risk, Return and Capital Budgeting

CAPM Capital Asset Pricing Model By Martin Swoboda and Sharon Lu.

Professor XXX Course Name / #

Economics 434 Financial Markets Professor Burton University of Virginia Fall 2015 September 22, 2015.

Investing 101 Lecture 4 Basic Portfolio Building.

Efficient Diversification CHAPTER 6. Diversification and Portfolio Risk Market risk –Systematic or Nondiversifiable Firm-specific risk –Diversifiable.

McGraw-Hill/Irwin © 2007 The McGraw-Hill Companies, Inc., All Rights Reserved. Efficient Diversification CHAPTER 6.

Chapter McGraw-Hill/Irwin Copyright © 2006 by The McGraw-Hill Companies, Inc. All rights reserved. 13 Return, Risk, and the Security Market Line.

© 2012 McGraw-Hill Ryerson LimitedChapter  Market Risk Premium: ◦ The risk premium of the market portfolio. It is the difference between market.

Ch 13. Return, Risk and Security Market Line (SML)

Return and Risk: The Asset-Pricing Model: CAPM and APT.

McGraw-Hill/Irwin Copyright © 2004 by The McGraw-Hill Companies, Inc. All rights reserved Corporate Finance Ross  Westerfield  Jaffe Seventh Edition.

Managing Portfolios: Theory

13-0 Return, Risk, and the Security Market Line Chapter 13 Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin.

1 CHAPTER THREE: Portfolio Theory, Fund Separation and CAPM.

1 CHAPTER 2 Risk and Return. 2 Topics in Chapter 2 Basic return measurement Types of Risk addressed in Ch 2: Stand-alone (total) risk Portfolio (market)

Chapter McGraw-Hill/Irwin Copyright © 2006 by The McGraw-Hill Companies, Inc. All rights reserved. Return, Risk, and the Security Market Line.

1 Chapter 7 Risk, Return, and the Capital Asset Pricing Model.

Chapter 5 Risk and Rate of Return. 2 EXPECTED RATE OF RETURN Outcomes Known K μ = E(R) = P 1 K 1 + P 2 K 2 + P 3 K 3 Outcomes Unknown (sample) _ K = ΣK.

2 - 1 Copyright © 2002 by Harcourt College Publishers. All rights reserved. Chapter 2: Risk & Return Learning goals: 1. Meaning of risk 2. Why risk matters.

1 CHAPTER 6 Risk, Return, and the Capital Asset Pricing Model (CAPM)

Pricing Financial Assets Timing and Amount of Cash Flows Risk of the Cash Flows Present Value of the Cash Flows discounted at the appropriate level of.

Return, Risk, and the Security Market Line Chapter Thirteen.

Chapter 7 Risk and Portfolio Theory. Expected Return E( r ) = E ( D ) +g P.

Chapter 15 Portfolio Theory

3rd Midterm Review.

Ch. 11: Risk and Return Expected Returns & Variances

Presentation transcript:

Diagrams of CAPM Chapter 10 figures

Correlation coefficient

Portfolio variance In terms of the correlation coefficient

Diversification, minimum variance  E(R)  A B MV

The case of r = 1

Portfolio expected return

Still  = 1

Expected return

Substitute out X B

Diversification, minimum variance  E(R)  A B MV

Diversification with a risk-free asset  E(R) A= risk-free asset B MV

Capital Market Line Expected return of portfolio Standard deviation of portfolio’s return. Risk-free rate (R f ) M... Capital market line. X Y.. Indifference curve preferred

Argument for the security market line  Only beta matters  A mix of T-Bills and the market can produce any beta.  An asset with that beta is no better or worse than the two-fund counterpart  Hence it has the same return.

Security Market Line Expected return on security (%) Beta of security RmRm RfRf 1 M. 0.8 S. T. Security market line (SML) S is overvalued. Its price falls T is undervalued. Its price rises...

Exam item  What is the interest rate?

Don’t write  The interest rate is the time value of money.

Do write:  The interest rate is the premium for current delivery of money.  P 0 is the price of current money in current money, namely 1.  P 1 is the price of time-one money in terms of current money, something <1.  P