Introduction to Risk, Return, and the Historical Record参考.ppt

* * * * * * * * * * * * * * * * * * * * * * * * * * * * Example (Ctd.) The risk of the complete portfolio is the weight of P times the risk of P: Example (Ctd.) Rearrange and substitute y=sC/sP: Figure 6.4 The Investment Opportunity Set Lend at rf=7% and borrow at rf=9% Lending range slope = 8/22 = 0.36 Borrowing range slope = 6/22 = 0.27 CAL kinks at P Capital Allocation Line with Leverage Figure 6.5 The Opportunity Set with Differential Borrowing and Lending Rates Risk Tolerance and Asset Allocation The investor must choose one optimal portfolio, C, from the set of feasible choices Expected return of the complete portfolio: Variance: Table 6.4 Utility Levels for Various Positions in Risky Assets (y) for an Investor with Risk Aversion A = 4 Figure 6.6 Utility as a Function of Allocation to the Risky Asset, y Table 6.5 Spreadsheet Calculations of Indifference Curves Figure 6.7 Indifference Curves for U = .05 and U = .09 with A = 2 and A = 4 Figure 6.8 Finding the Optimal Complete Portfolio Using Indifference Curves Table 6.6 Expected Returns on Four Indifference Curves and the CAL Passive Strategies: The Capital Market Line The passive strategy avoids any direct or indirect security analysis Supply and demand forces may make such a strategy a reasonable choice for many investors Passive Strategies: The Capital Market Line A natural candidate for a passively held risky asset would be a well-diversified portfolio of common stocks such as the SP 500. The capital market line (CML) is the capital allocation line formed from 1-month T-bills and a broad index of common stocks (e.g. the SP 500). Passive Strategies: The Capital Market Line The CML is given by a strategy that involves investment in two passive portfolios: virtually risk-free short-term T-bills (or a money market fund) a fund of common stocks that mimics a broad market index. Passive Strategies: The Capital Market Line From 1926 to 2009, the passive risky portfolio offered an averag