Chapter11TheCAPM.pptVIP

Chapter 11: The CAPM;Outline;Expected return with ex ante probabilities;An example, I;Portfolio variability measures with ex ante probabilities;Formulas;An example, II;2-asset diversification, I;Portfolio return;2-asset diversification, II;2-asset diversification, III;Correlation coefficient;2-asset diversification, IV;? = 1;? = -1;2-asset diversification;So, these are what we have so far:;2-asset formulas;Now, let us work on ? = 0, i.e., Cov=0; N risky assets;N-asset + Rf diversification;Selecting an optimal portfolio from N2 assets;What if one can invest in the risk-free asset?;Enhanced efficient frontier (EEF);Separation, I;Separation, II;EEF vs. EF;When you hold a well-diversified portfolio, I;When you hold a well-diversified portfolio, II;When you hold a well-diversified portfolio, III;Beta as a measure of systematic risk;More about beta;Total risk vs. systematic risk;Risk, again;Beta and risk premium;Beta and expected return, rf = 6%;Reward-to-risk ratio;Equilibrium argument;The CAPM;An example;All-equity firms;This is the way practitioners estimate ?;Characteristic line;Is the CAPM a good model?;Assignment;End-of-chapter