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INVESTMENTS: Analysis and Management Second Canadian Edition INVESTMENTS: Analysis and Management Second Canadian Edition W. Sean Cleary Charles P. Jones.

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Presentation on theme: "INVESTMENTS: Analysis and Management Second Canadian Edition INVESTMENTS: Analysis and Management Second Canadian Edition W. Sean Cleary Charles P. Jones."— Presentation transcript:

1 INVESTMENTS: Analysis and Management Second Canadian Edition INVESTMENTS: Analysis and Management Second Canadian Edition W. Sean Cleary Charles P. Jones

2 Chapter 9 Capital Market Theory

3 Describe how betas are estimated and how beta is used. Learning Objectives

4 Beta = 1.0 implies as risky as market Securities A and B are more risky than the market  Beta > 1.0 Security C is less risky than the market  Beta < 1.0 A B C E(R M ) RF 01.02.00.51.5 SML Beta M E(R) Security Market Line

5 Beta measures systematic risk  Measures relative risk compared to the market portfolio of all stocks  Volatility different than market All securities should lie on the SML  The expected return on the security should be only that return needed to compensate for systematic risk Security Market Line

6 Copyright © 2005 John Wiley & Sons Canada, Ltd. All rights reserved. Reproduction or translation of this work beyond that permitted by Access Copyright (The Canadian Copyright Licensing Agency) is unlawful. Requests for further information should be addressed to the Permissions Department, John Wiley & Sons Canada, Ltd. The purchaser may make back-up copies for his or her own use only and not for distribution or resale. The author and the publisher assume no responsibility for errors, omissions, or damages caused by the use of these programs or from the use of the information contained herein. Copyright


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