FIN3000
Chapter8
Riska
dRetur
CapitalAssetPrici
gModel
Liure
Wu
fOverview
1PortfolioRetur
sa
dPortfolioRisk
Calculatetheexpectedrateofretur
a
dvolatilityforaportfolioofi
vestme
tsa
ddescribehowdiversificatio
affectstheretur
stoaportfolioofi
vestme
ts
2SystematicRiska
dtheMarketPortfolio
U
dersta
dtheco
ceptofsystematicriskfora
i
dividuali
vestme
ta
dcalculateportfoliosystematicriskbeta
3TheCAPM
httpwwwtdzl
et
httpwwwu51688com
Estimatea
i
vestor’srequiredrateofretur
usi
gcapitalasset
prici
gmodel
2
FIN3000Liure
Wu
f81PortfolioRetur
sa
dPortfolioRisk
Byi
vesti
gi
ma
ydiffere
tstockstoformaportfolioweca
lowertheriskwithoutloweri
gtheexpectedretur
Theeffectofloweri
griskviaappropriateportfolioformulatio
iscalleddiversificatio
Bylear
i
ghowtocomputetheexpectedretur
a
drisko
aportfolioweillustratetheeffectofdiversificatio

3
FIN3000Liure
Wu
fTheExpectedRetur
ofaPortfolio
Tocalculateaportfolio’sexpectedrateofretur
weweighteachi
dividuali
vestme
t’sexpectedrateofretur
usi
gthefractio
ofmo
eyi
vestedi
eachi
vestme
t
Example81Ifyoui
vest25ofyourmo
eyi
thestockofCitiba
kCwitha
expectedrateofretur
of32a
d75ofyourmo
eyi
thestockofAppleAAPLwitha
expectedrateofretur
of120whatwillbetheexpectedrateofretur
o
thisportfolio
Expectedrateofretur
25327512082
4
FIN3000Liure
Wu
fCheckpoi
t81
Calculati
gaPortfolio’sExpectedRateofRetur
Pe
ySimpso
hasherfirstfulltimejoba
disco
sideri
ghowtoi
vesthersavi
gsHerdadsuggestedshei
vest
omoretha
25ofhersavi
gsi
thestockofheremployerEmerso
ElectricEMRsosheisco
sideri
gi
vesti
gtheremai
i
g75i
acombi
atio
ofariskfreei
vestme
ti
USTreasurybillscurre
tlypayi
g4a
dStarbucksSBUXcommo
stockPe
y’sfatherhasi
vestedi
thestockmarketforma
yyearsa
dsuggestedthatPe
ymightexpecttoear
9o
theEmerso
sharesa
d12fromtheStarbuckssharesPe
ydecidestoput25i
Emerso
25i
Starbucksa
dtheremai
i
g50i
TreasurybillsGive
Pe
y’sportfolioallocatio
whatrateofretur
shouldsheexpecttoreceiveo
heri
vestme
t
5
FIN3000Liure
Wu
fCheckpoi
t81
6
FIN3000Liure
Wu
fCheckpoi
t81CheckYourself
Evaluatetheexpectedretur
forPe
y’sportfoliowheresheplaces14thofhermo
eyi
Treasurybillshalfi
Starbucksstocka
dtheremai
deri
Emerso
Electricstock
A
swer9
7
FIN3000Liure
Wu
fEvaluati
gPortfolioRisk
U
likeexpectedretur
sta
darddeviatio
is
otge
erallyequaltotheaweightedaverageofthesta
darddeviatio
softheretur
sofi
vestme
tsheldi
theportfolioThisisbecauseofdiversificatio
effects
Thediversificatio
gai
sachievedbr