1. Efficient Portfolios MGT 4850 Spring 2009 University of Lethbridge

2. No short sales Ch. 9 example p. 268-270: all asset weights positive Solver settings we used did not allow short sales.

3. Constant 0.5

4. Finding Tangent Portfolio (unconstrained case p.337)

5. Constant 2%

6. Capital Asset Pricing Model Assumptions Perfect Competition – Individual investors are price takers Single Investment Horizon Investments are limited to traded financial assets No taxes or transaction costs Investors are rational mean variance optimizers Homogeneous expectations

7. Capital Asset Pricing Model Equilibrium Conditions All investors will hold the same portfolio of risky assets – the market portfolio Market Portfolio contains all securities Risk premium on the market depends on the average risk aversion of all market participants Risk premium on an individual security is a function with its covariance with the market

8. Efficient frontier (2 portfolios)

9. Creating the frontier