Exam (elaborations)
Fin 400 Ch 3 Questions And Answers Latest Update
- Course
- FIN 400
- Institution
- University Of Illinois - Urbana-Champaign
Fin 400 Ch 3 Questions And Answers Latest Update
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2024/2025Fin 400 Ch 3 Questions And
Answers Latest Update
Expected return of portfolio with several stocks Formula ANS✔✔ r(portfolio) = w(stock a) *
r(stock a) + (1 - wstock a) * r(stock b)
Portfolio Standard Deviation Formula* ANS✔✔
Efficient Portfolios ANS✔✔ Offers most return for given amount of risk or least risk for a given
amount of return
CAPM* ANS✔✔ an equilibrium model that specifies the relationship between risk and required
rate of return for assets held in well diversified portfolios
only 1 factor affects risk:
Assumptions of CAPM ANS✔✔ 1) single holding period
2) identical expectations
3) can borrow or lend unlimited amounts at risk free rate
4) assets are perfectly divisible
5) no taxes and no transaction costs
6) buying and selling won't influence stock prices
7) quantities of all assets are given and fixed
Capital Market Line (CML) ANS✔✔ linear combinations of the risk free asset and Portfolio M
Portfolio below the CML are inferior: CML defines the new efficient set, all investors will choose a
portfolio on the CML
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