Microsoft PowerPoint - PoF.ppt

SMLƒ 59

Proof:

ƒ

Consider the following portfolio

2

2

2

2

)

(^1) (
)
(^1) (
) 2
(^1) (
M
iM
i
M
i
r
r
r
σ α σ α α σ α σ
α
α
α α
−

• −


• 
  

  =
  −

  
  


• 
  

  =
  Single-period random cash flows: CAPM
  risk vs return
  0.230.210.190.170.150.130.110.090.070.05
  0
  0.05
  0.1
  0.15
  0.2
  0.25
  risk
  return
  M