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Risk Dan Return 2
Risk Dan Return 2
Risk Dan Return 2
CHAPTER 3
Risk and Return: Part II
Feasible Set
Risk, p
Feasible and Efficient Portfolios
3-6
Optimal
IA Portfolio
2
IA Investor B
1
Optimal Portfolio
Investor A
Risk p
Optimal Portfolios
3-8
Expected Z
Return, rp
. B
^r
M
.
M
rRF
A . Line (CML):
New Efficient Set
M Risk, p
3 - 11
^
^ rM - rRF
rp = rRF + p.
M
Intercept Slope
Risk
measure
3 - 13
^r
^r
R
M
.
R
. M
R = Optimal
rRF Portfolio
R M Risk, p
3 - 15
ri = rRF + (RPM) bi
3 - 17
-5 0 5 10 15 20 _
rM
-5
^
ri = -2.59 + 1.44 k^M
. -10
3 - 19
Method of Calculation
(More...)
3 - 20
2 = b2 2 + e2.
j j M j
2j = variance
= stand-alone risk of Stock j.
b2 2 = market risk of Stock j.
j M
e2 = variance of error term
j
= diversifiable risk of Stock j.
3 - 24
Yes.
Richard Roll questioned whether it was
even conceptually possible to test the
CAPM.
Roll showed that it is virtually
impossible to prove investors behave
in accordance with CAPM theory.
3 - 28
It is impossible to verify.
Recent studies have questioned its
validity.
Investors seem to be concerned with
both market risk and stand-alone
risk. Therefore, the SML may not
produce a correct estimate of ri. (More...)
3 - 29
CAPM:
ri = rRF + (rM - rRF)bi
ri = 6.8% + (6.3%)(0.9)
= 12.47%