Modern Portfolio Theory
MBA
Modern Portfolio Theory
Corporate Finance II
Final Paper
Table of Contents
1. Title Page pg. 1
2. Table of Contents pg. 2
3. Introduction/ Executive Summary pg. 3
4. Modern Portfolio Theory pg. 3
5. Portfolio Management pg. 4
6. Controlling the Risk pg. 5
7. Diversification pg. 6
8. CAPM pg. 7
9. Beta: Advantages and Disadvantages pg. 8
10. Options pg. 10
11. Hedging pg. 11
12. Net Present Value (NPV) pg. 12
13. Technical Indicators: pg. 14
14. Efficiency Frontier pg. 15
14. Conclusion pg. 16
15. Bibliography pg. 18
16. Bonus Assignment- Investing Websites pg. 19
Modern Portfolio Theory
Introduction/ Executive Summary
On a general level, investment managers and academic economists have long been aware of the necessity of taking returns and risk into account: "all your eggs should not be placed in the same basket". This is where the idea of holding a portfolio of shares comes from. Modern portfolio theory (MPT), or portfolio theory, was introduced by Harry Markowitz with his paper "Portfolio Selection" which appeared in the 1952 Journal of Finance. Thirty-eight years later, he shared a Nobel Prize with Merton Miller and William Sharpe for what has become a broad theory for portfolio selection. Portfolio theory explores how risk adverse investors construct portfolios in order to optimize expected returns for a given level of market risk. The theory quantifies the benefits of diversification. Out of a universe of risky assets, an efficient frontier of optimal portfolios can be constructed. Each portfolio on the efficient frontier offers the maximum possible expected return for a given level of risk. An example of this can be seen below.
Modern Portfolio Theory (MPT)
The Modern Portfolio Theory, MPT, founded by Harry Markowitz, in the 1952 Journal of Finance, is a
Modern Portfolio Theory
Corporate Finance II
Final Paper
Table of Contents
1. Title Page pg. 1
2. Table of Contents pg. 2
3. Introduction/ Executive Summary pg. 3
4. Modern Portfolio Theory pg. 3
5. Portfolio Management pg. 4
6. Controlling the Risk pg. 5
7. Diversification pg. 6
8. CAPM pg. 7
9. Beta: Advantages and Disadvantages pg. 8
10. Options pg. 10
11. Hedging pg. 11
12. Net Present Value (NPV) pg. 12
13. Technical Indicators: pg. 14
14. Efficiency Frontier pg. 15
14. Conclusion pg. 16
15. Bibliography pg. 18
16. Bonus Assignment- Investing Websites pg. 19
Modern Portfolio Theory
Introduction/ Executive Summary
On a general level, investment managers and academic economists have long been aware of the necessity of taking returns and risk into account: "all your eggs should not be placed in the same basket". This is where the idea of holding a portfolio of shares comes from. Modern portfolio theory (MPT), or portfolio theory, was introduced by Harry Markowitz with his paper "Portfolio Selection" which appeared in the 1952 Journal of Finance. Thirty-eight years later, he shared a Nobel Prize with Merton Miller and William Sharpe for what has become a broad theory for portfolio selection. Portfolio theory explores how risk adverse investors construct portfolios in order to optimize expected returns for a given level of market risk. The theory quantifies the benefits of diversification. Out of a universe of risky assets, an efficient frontier of optimal portfolios can be constructed. Each portfolio on the efficient frontier offers the maximum possible expected return for a given level of risk. An example of this can be seen below.
Modern Portfolio Theory (MPT)
The Modern Portfolio Theory, MPT, founded by Harry Markowitz, in the 1952 Journal of Finance, is a
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