Portfolio Theory and the Capital Asset Pricing Model - Revision history

Dirkjan at 19:25, 27 August 2020

2020-08-27T19:25:27Z

Dirkjan: Replaced content with "Portfolio Theory and the Capital Asset Pricing Model Category:finance Category:M13 Category:Term"

2020-08-27T18:39:22Z

Replaced content with "Portfolio Theory and the Capital Asset Pricing Model Category:finance Category:M13 Category:Term"

Dirkjan: Created page with "The picture below depicts a set of possible investment '''''portfolios'''''. The risk of a portfolio comprises systematic risk, also known as Undiversifiable Risk|Undiversif..."

2020-08-25T07:41:05Z

Created page with "The picture below depicts a set of possible investment '''''portfolios'''''. The risk of a portfolio comprises systematic risk, also known as Undiversifiable Risk|Undiversif..."

New page

The picture below depicts a set of possible investment '''''portfolios'''''. The risk of a portfolio comprises systematic risk, also known as [[Undiversifiable Risk|Undiversifiable Risk]], and unsystematic risk which is also known as [[Diversifiable Risk|Diversifiable Risk]], usually proxied by the standard deviation of the portfolio's return. Undiversifiable risk refers to the risk common to all securities which is the market risk.

* <math>r_M</math> is the '''average market risk'''
* <math>{\sigma}_M</math> is the '''average variance on the market risk'''
* <math>r_F</math> is the '''[[Risk free rate of return|Risk free rate of return]]'''
* The red dot in the picture marks the '''full market portfolio'''
* The '''Efficient set''' (the blue line) represents the '''biggest return possible''' for each given risk profile

The CAPM assumes that the risk-return profile of a portfolio can be optimized - an optimal portfolio displays the lowest possible level of risk for its level of return.

<html><img src = "/static/files/MBI/Module%2013/CAPM.png" width="800"/></html>

By adding a risk free asset to a portfolio, one can reduce risk:

<html><img src = "/static/files/MBI/Module%2013/CAPM_riskfree.png" width="800"/></html>

By borrowing and increasing your portfolio you can increase return:

<html><img src = "/static/files/MBI/Module%2013/CAPM_borrowing.png" width="800"/></html>

By doing both 1) and 2) we get the Capital Market Line:

<html><img src = "/static/files/MBI/Module%2013/CAPM_capitalmarketline.png" width="800"/></html>

[[Category:finance]]

[[Category:M13]]

[[Category:Term]]

← Older revision		Revision as of 18:39, 27 August 2020
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−	~~The picture below depicts a set of possible investment '''''portfolios'''''. The risk of a portfolio comprises systematic risk, also known as [[Undiversifiable Risk\|Undiversifiable Risk]],~~ and unsystematic risk which is also known as [[Diversifiable Risk\|Diversifiable Risk]], usually proxied by the standard deviation of the portfolio's return. Undiversifiable risk refers to the risk common to all securities which is the market risk.	+	Portfolio Theory and the Capital Asset Pricing Model
−
−	* <math>r_M</math> is the '''average market risk'''
−	* <math>{\sigma}_M</math> is the '''average variance on the market risk'''
−	* <math>r_F</math> is the '''[[Risk free rate of return\|Risk free rate of return]]'''
−	* The red dot in the picture marks the '''full market portfolio'''
−	* The '''Efficient set''' (the blue line) represents the '''biggest return possible''' for each given risk profile
−
−	~~The CAPM assumes that the risk-return profile of a portfolio can be optimized - an optimal portfolio displays the lowest possible level of risk for its level of return.~~
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−
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−	~~<html><img src = "/static/files/MBI/Module%2013/CAPM.png" width="800"/></html>~~
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−
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−	~~By adding a risk free asset to a portfolio, one can reduce risk:~~
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−
−	~~<html><img src = "/static/files/MBI/Module%2013/CAPM_riskfree.png" width="800"/></html>~~
−
−
−
−	~~By borrowing and increasing your portfolio you can increase return:~~
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−
−
−	~~<html><img src = "/static/files/MBI/Module%2013/CAPM_borrowing.png" width="800"/></html>~~
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−
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−	~~By doing both 1) and 2) we get~~ the Capital ~~Market Line:~~
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−	~~<html><img src = "/static/files/MBI/Module%2013/CAPM_capitalmarketline.png" width="800"/></html>~~
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−
	[[Category:finance]]		[[Category:finance]]

← Older revision		Revision as of 19:25, 27 August 2020
Line 1:		Line 1:
−	~~Portfolio Theory~~ and the Capital ~~Asset Pricing Model~~	+	The picture below depicts a set of possible investment '''''portfolios'''''. The risk of a portfolio comprises systematic risk, also known as [[Undiversifiable Risk\|Undiversifiable Risk]], and unsystematic risk which is also known as [[Diversifiable Risk\|Diversifiable Risk]], usually proxied by the standard deviation of the portfolio's return. Undiversifiable risk refers to the risk common to all securities which is the market risk.
		+
		+	* <math>r_M</math> is the '''average market risk'''
		+	* <math>{\sigma}_M</math> is the '''average variance on the market risk'''
		+	* <math>r_F</math> is the '''[[Risk free rate of return\|Risk free rate of return]]'''
		+	* The red dot in the picture marks the '''full market portfolio'''
		+	* The '''Efficient set''' (the blue line) represents the '''biggest return possible''' for each given risk profile
		+
		+	The CAPM assumes that the risk-return profile of a portfolio can be optimized - an optimal portfolio displays the lowest possible level of risk for its level of return.
		+
		+
		+
		+	<html><img src = "/static/files/MBI/Module%2013/CAPM.png" width="800"/></html>
		+
		+
		+
		+	By adding a risk free asset to a portfolio, one can reduce risk:
		+
		+
		+	<html><img src = "/static/files/MBI/Module%2013/CAPM_riskfree.png" width="800"/></html>
		+
		+
		+
		+	By borrowing and increasing your portfolio you can increase return:
		+
		+
		+
		+	<html><img src = "/static/files/MBI/Module%2013/CAPM_borrowing.png" width="800"/></html>
		+
		+
		+
		+	By doing both 1) and 2) we get the Capital Market Line:
		+
		+
		+
		+	<html><img src = "/static/files/MBI/Module%2013/CAPM_capitalmarketline.png" width="800"/></html>
		+
		+
		+
	[[Category:finance]]		[[Category:finance]]