Microsoft PowerPoint - PoF.ppt

Properties of portfolios: returnƒ 25

Multiple-asset portfolio

xj

= Dollar amount in of security

J bought (or sold short) / total

equity investment in the portfolio

ƒ

... portfolio return is weighted average of individual securities’ returns

ƒ

Weights are fractions of individual

securities in total portfolio value

ƒ

Weights can be positive (long positi

on) or negative (short position)

ƒ

Weights must add to 1

ƒ

Expected value of a random variable

∑=

=

n j

j

j

P

r

x

r

1

Single-period random cash flows: Mean-variance portfolio theory

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∑

∫

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∞ ∞−

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n j

j

j

P

s

s

s

r

E

x

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dx

x

xf

p

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