Pikulina Overview From Portfolio Theory to the CAPM Investment Theory The Capital Asset Pricing Model CAPM: Assumptions and Implications The CAPM Equation SML and CML Elena Pikulina Sauder School of Business University of British Columbia Beta and Alpha 1 / 29 General Overview Investment Theory Elena Pikulina Overview From Portfolio Theory to the CAPM CAPM: Assumptions and Implications The CAPM Equation SML and CML Beta and Alpha • In the previous lecture (Portfolio Theory) we studied how
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HEC Paris Financial Markets Spring 2012 Final Exam “Cheat Sheet” 0. Basic Statistics (a) Consider an n-outcome probability space with probabilities p1 ‚ p2 ‚ . . . ‚ pn . Consider two discrete random variables X and Y with outcomes (X1 ‚ X2 ‚ . . . ‚ Xn ) and (Y1 ‚ Y2 ‚ . . . ‚ Yn ). 2 The we have the following formulas for means (µX ‚ µY )‚ variance (σX )‚ standard deviation (σX )‚ covariance (σX‚Y )‚ and correlation (ρX‚Y ) µX = EX = E(X) = p1 X1 + p2 X2 + · · · + pn Xn µY = EY = E(Y ) =
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Asset Pricing and Portfolio Analysis 33:390:410:01 Fall 2013 Lectures: M/W 1:40-3:00 BRR 5101 Office Hours: Wednesday s 3:15-4:15 & by appointment Professor Office: BRR 5139 Phone: Email: Please read the syllabus carefully since it presents the philosophy of the course‚ provides a broad outline of the issues‚ and discusses course requirements. Note that you are responsible for reading and understanding all course requirements. Course Description: This course
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Prioritizing the IT Project Portfolio Paper Vicky Dugan CMGT/573 09/22/2014 Dion Rettberg Running head: Prioritizing the IT Project Portfolio Paper 1 3 Lila ’s Web design is a fairly new business. Lila has about 45 employees‚ and is in the middle of interviewing for an IT project manager. The Information Technology (IT) project will play an important role in Lila ’s business. The new IT project manager will be looking into getting the Project Portfolio Management (PPM) tools. This tool
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to figure out the weights of assets A and B in the market portfolio: E[RA ] − RF E[RB ] − RF = σAM σBM E[RA ] − RF E[RB ] − RF ⇒ = 2 2 wA σA + (1 − wA )σAB wA σAB + (1 − wA )σB 0.021 − 0.02 0.05 − 0.02 ⇒ = . wA × 0.004389 + (1 − wA ) × (−0.00099) wA × (−0.00099) + (1 − wA )0.00594 1 This can be solved to obtain wA = 0.2118 and thus wB = 1 − wA = 0.7882. Expected return and standard deviation of the market portfolio are: E[RM ] = 0.2118 × 0.021 + 0.7882 × 0.05 = 0.04386 =
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Active &Passive Portfolio – Call/Put Options and Futures This report will document the active traded portfolio held from Friday (July 18th‚ 2014) until Monday (August 11th‚ 2014). In this portfolio‚ the two portfolio managers traded call options and put option for the stocks on the S&P 500‚ as well as futures contracts in many different asset classes (commodities‚ currencies‚ indexes and so on). Trades were made at the end of each week and Monday (August 11‚ 2014)‚ resulting in four trading days
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of return (return on government securities) from the rate of return for a portfolio and dividing the result by the standard deviation of the portfolio returns. {draw:line} {draw:frame} {draw:frame} Sharpe Ratio = Where rp = Expected portfolio rate of return rf = Risk free rate of return σp = Portfolio standard deviation Since standard deviation is a measure of the associated risk (systematic + unsystematic) of a portfolio‚ it helps to evaluate whether the portfolio’s returns are due to smart investment
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38. You buy 300 shares of Qualitycorp for $30 per share and deposit initial margin of 50%. The next day Qualitycorp’s price drops to $25 per share. What is your actual margin? A) 50% B) 40% C) 33% D) 60% E) 25% Answer: B Difficulty: Moderate Rationale: AM = [300 ($25) - .5 (300) ($30)] / [300 ($25)] = .40 30. Assume that you purchased 200 shares of Super Performing mutual fund at a
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Risk and Return: Portfolio Theory and Asset Pricing Models Portfolio Theory Capital Asset Pricing Model (CAPM) Efficient frontier Capital Market Line (CML) Security Market Line (SML) Beta calculation Arbitrage pricing theory Fama-French 3-factor model Portfolio Theory • Suppose Asset A has an expected return of 10 percent and a standard deviation of 20 percent. Asset B has an expected return of 16 percent and a standard deviation of 40 percent. If the correlation between A and B is 0.6
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single best addition to complement Stephenson’s current portfolio‚ given his selection criteria. First‚ Fund D’s expected return (14.0 percent) has the potential to increase the portfolio’s return somewhat. Second‚ Fund D’s relatively low correlation with his current portfolio (+0.65) indicates that Fund D will provide greater diversification benefits than any of the other alternatives except Fund B. The result of adding Fund D should be a portfolio with approximately the same expected return and somewhat
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