CHAPTER 5

Portfolio Theory and Assets Pricing Models

LEARNING OBJECTIVES

  • Calculate the return of a portfolio of two or more assets or securities.
  • Determine standard deviation, covariance and correlation of a two-asset portfolio and portfolio beta.
  • Show with an example how the correlation between two assets affects the risk of the portfolios of those assets.
  • Determine the minimum variance of a two-asset portfolio.
  • Draw a diagram to illustrate the difference between inefficient portfolio, efficient portfolio and market portfolio.
  • Illustrate the difference between systemic risk and unsystematic risk.
  • Calculate the slope of capital market line (CML) and security market line (SML).
  • Calculate the expected rate of return based on the concept ...

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