Principles of Corporate Finance
Portfolio Risk Expected Portfolio Return = (x 1 r 1 ) + (x 2 r 2 ) Portfolio Variance = x 12 ó 12 + x 22 ó 22 + 2 (x 1 x 2 ñ 12 ...
Portfolio Risk The shaded boxes contain variance terms; the remainder contain covariance terms. 1 2 3 4 5 6 N 1 2 3 4 5 6 N STOC ...
Beta and Unique Risk beta Expected return Expected market return 10% +10% +10%-10% stock Copyright 1996 by The McGraw-Hill Com ...
Beta and Unique Risk Market Portfolio - Portfolio of all assets in the economy. In practice a broad stock market index, such as ...
Beta and Unique Risk 2 m im Bi σ σ = ...
Beta and Unique Risk 2 m Bi im σ = σ Covariance with the market Variance of the market ...
u Risk and Return Principles of Corporate Finance Brealey and Myers Sixth Edition Chapter 8 ...
Topics Covered w Markowitz Portfolio Theory w Risk and Return Relationship w Testing the CAPM w CAPM Alternatives ...
Markowitz Portfolio Theory w Combining stocks into portfolios can reduce standard deviation below the level obtained from a simp ...
Markowitz Portfolio Theory Price changes vs. Normal distribution Microsoft - Daily % change 1986-1997 0 100 200 300 400 500 600 ...
Markowitz Portfolio Theory Price changes vs. Normal distribution Microsoft - Daily % change 1986-1997 0 100 200 300 400 500 600 ...
Markowitz Portfolio Theory Standard Deviation VS. Expected Return Investment C 0 2 4 6 8 10 12 14 16 18 20 -50 0 50 % probabilit ...
Markowitz Portfolio Theory Standard Deviation VS. Expected Return Investment D 0 2 4 6 8 10 12 14 16 18 20 -50 0 50 % probabilit ...
Markowitz Portfolio Theory Bristol-Myers Squibb McDonald’s Standard Deviation Expected Return (%) 45% McDonald’s u Expected Retu ...
Efficient Frontier Standard Deviation Expected Return (%) Each half egg shell represents the possible weighted combinations for ...
Efficient Frontier Standard Deviation Expected Return (%) Lending or Borrowing at the risk free rate (rf) allows us to exist ou ...
Efficient Frontier Example Correlation Coefficient = .4 Stocks σ % of Portfolio Avg Return ABC Corp 28 60% 15% Big Corp 42 40% 2 ...
Efficient Frontier Example Correlation Coefficient = .4 Stocks σ % of Portfolio Avg Return ABC Corp 28 60% 15% Big Corp 42 40% 2 ...
Efficient Frontier Example Correlation Coefficient = .3 Stocks σ % of Portfolio Avg Return Portfolio 28.1 50% 17.4% New CorpNew ...
Efficient Frontier Example Correlation Coefficient = .3 Stocks σ % of Portfolio Avg Return Portfolio 28.1 50% 17.4% New Corp 30 ...
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