diagrams of capm n.
Download
Skip this Video
Loading SlideShow in 5 Seconds..
Diagrams of CAPM PowerPoint Presentation
Download Presentation
Diagrams of CAPM

Loading in 2 Seconds...

  share
play fullscreen
1 / 18
burton

Diagrams of CAPM - PowerPoint PPT Presentation

113 Views
Download Presentation
Diagrams of CAPM
An Image/Link below is provided (as is) to download presentation

Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server.

- - - - - - - - - - - - - - - - - - - - - - - - - - - E N D - - - - - - - - - - - - - - - - - - - - - - - - - - -
Presentation Transcript

  1. Diagrams of CAPM Chapter 10 figures

  2. Investors need only two funds. • Figures 10.4, 10.5, and 10.6.

  3. Correlation coefficient

  4. Portfolio variance In terms of the correlation coefficient

  5. MV MV MV Diversification, minimum variance B E(R) A s

  6. The case of r = 1

  7. Portfolio expected return

  8. Still r = 1

  9. Expected return

  10. Substitute out XB

  11. MV MV MV Diversification, minimum variance B E(R) A s

  12. Nowr= -1

  13. MV Diversification with a risk-free asset B E(R) A= risk-free asset s

  14. . Y . X Capital Market Line Expected returnof portfolio Indifference curve Capital market line . preferred . M . . Risk-freerate (Rf ) Standarddeviation ofportfolio’s return.

  15. Argument for the security market line • Only beta matters • A mix of T-Bills and the market can produce any beta. • An asset with that beta is no better or worse than the two-fund counterpart • Hence it has the same return.

  16. . T . S 0.8 Security Market Line T is undervalued. Its price rises Expected returnon security (%) Security market line (SML) . . . . Rm M Rf S is overvalued. Its price falls Beta ofsecurity 1