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    FINA 4011 Exam 2 Outline

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    Ravi Patel
    This document provides a table of contents for chapters 5-7 of an investment textbook. Chapter 5 covers risk, return, and the historical record including topics like expected return, variance, standard deviation, and the Sharpe Ratio. Chapter 6 discusses efficient diversification including portfolio risk decomposition, asset allocation, correlations, and the minimum variance portfolio. Chapter 7 introduces capital asset pricing theory and the capital market line, the security market line, beta, and tests of the capital asset pricing model.

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    FINA 4011 Exam 2 Outline

    Uploaded by

    Ravi Patel
    66 views4 pages
    This document provides a table of contents for chapters 5-7 of an investment textbook. Chapter 5 covers risk, return, and the historical record including topics like expected return, variance, standard deviation, and the Sharpe Ratio. Chapter 6 discusses efficient diversification including portfolio risk decomposition, asset allocation, correlations, and the minimum variance portfolio. Chapter 7 introduces capital asset pricing theory and the capital market line, the security market line, beta, and tests of the capital asset pricing model.

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    This document provides a table of contents for chapters 5-7 of an investment textbook. Chapter 5 covers risk, return, and the historical record including topics like expected return, variance, standard deviation, and the Sharpe Ratio. Chapter 6 discusses efficient diversification including portfolio risk decomposition, asset allocation, correlations, and the minimum variance portfolio. Chapter 7 introduces capital asset pricing theory and the capital market line, the security market line, beta, and tests of the capital asset pricing model.

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    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    66 views4 pages

    FINA 4011 Exam 2 Outline

    Uploaded by

    Ravi Patel
    This document provides a table of contents for chapters 5-7 of an investment textbook. Chapter 5 covers risk, return, and the historical record including topics like expected return, variance, standard deviation, and the Sharpe Ratio. Chapter 6 discusses efficient diversification including portfolio risk decomposition, asset allocation, correlations, and the minimum variance portfolio. Chapter 7 introduces capital asset pricing theory and the capital market line, the security market line, beta, and tests of the capital asset pricing model.

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    Table of Contents

    Chapter 5: Risk, Return and the Historical Record SLIDE #


    Return and Risk definitions 4
    Rate of Return definition 6
    Holding Period Return (HPR) 7
    Holding Period Return (HPR) Example 8, Ch 5(8)
    Measuring Investment Return of multiple period 9
    Arithmetic Average (simple average of HPRs) 10
    Geometric Average 11, Ch5 (1)
    Conventions for Annualizing Returns 12
    APR 14, Ch5 (2,9)
    EAR 17
    APR and EAR Example 18,19, Ch 5(10)
    Inflation and the Real Rate of Interest 23
    Example 24
    Approximation and exact formula for real interest rate 26
    Examples 27,28,29, Ch 5(11,12)
    The Equilibrium Nominal Rate of Interest 30, Ch 5(3)
    Expected Return 33, Ch5(4)
    Variance and Standard Deviation 35,36
    Squared Deviation of expectation 36
    Using Time Series of Returns 40
    Expected return and expected standard deviation 40
    The Sharpe Ratio 45, Ch5(13)
    Normal Distribution 48,49, Ch5(5)
    Deviation from Normality and Tail Risk 52
    Skewness 53, Ch5(6)
    Value at Risk (VAR) 55, Ch5(7)
    The Equilibrium Nominal Rate of Interest 56
    Chapter 6: Efficient Diversification
    Diversification and Portfolio Risk 6
    Total Risk, Unsystematic and Systematic 6, Ch6(3)
    Unsystematic risk quiz question 9
    Systematic risk Ch6(1,2)
    Portfolio diversification quiz question 10, Ch6(4,5)
    Asset Allocation with Two Risky Assets 13
    Symbols 14
    Correlation 15
    Correlation Example 17
    Correlation Example with 2 states of economy 19 Ch6(6)
    Expected Return and Standard Deviation of a portfolio 23
    Example 24,25
    Conceptual explanation 24
    Risk return space, investment opportunity set, minimum variance portfolio 27
    Graph showing what portfolio is better/ diversification benefit and correlations 28
    Portfolio opportunity set Ch6(8)
    Diversification benefit question 29
    Global minimum variance portfolio 30

    Chapter 6 Part 2: Efficient Diversification


    Complete Portfolio’s, expected return, variance and standard deviation 5
    Standard deviation Ch6(14)
    Expected returnCh6(15)
    Complete portfolio Ch6 (16)
    Capital Allocation Line (CAL) 7, Ch6(9)
    Risky asset and risk- free asset expected return (without weights) (given portfolio std deviation) 8,9
    (without weights) (Given portfolio expected return) 10,11 Ch6(17)
    (without weights) (Given portfolio standard deviation) Ch6(18)
    Optimal Risky Portfolio 15, Ch6(10)
    Efficient Diversification with Many Risky Assets 19,20
    Minimum-variance frontier, global minimum variance portfolio, efficient frontier of risky assets
    21, Ch6(11), Ch6(12)
    The Preferred Complete Portfolio and a Separation Property 23, Ch6 #13
    Efficient portfolio question 25

    Chapter 7: Capital Asset Pricing and Arbitrage Pricing Theory


    Realized returns vs. expected return and excess return 4,5
    Single factor model 7, Ch7(1)
    2 options of describing stock market 7
    Scatter Plot 8
    Security Characteristic Line 10,11,12,13, Ch7(4)
    Single Index Model (beta) 14, Ch7(7)
    Single Index Model cont. (residual, alpha) 15, Ch7(3)
    Example 16
    Single Index Model 3 components 17
    Single factor model Quiz question 18
    Statistical Interpretation of the single factor model 23
    Expected Return 24
    Example 25,26,27
    Risk 28,30
    Example 29
    R squared 30
    Risk measured on graphs 31
    Breaking down variance of stocks to systematic and firm specific 33,34,35,36,37
    Correlation and covariance 38
    Example 39,40,41
    CAPM 45, Ch7(5,6,8,910)
    Correlation and covariance 38
    Example 39,40,41, Ch7(15,16)
    CAPM 46,47,48

    Assumptions and Implications 48,49


    The Passive Strategy is Efficient 51
    Expected Returns on Individual Securities 52
    The Security Market Line 53,54
    The Risk Premium of the Market Portfolio 55
    Expected excess return given a beta Example 56, Ch7(12)

    Standard deviation index model 5, Ch7(13)


    Risk Aversion coefficient Example 57,58,59, Ch7(17,18)
    Quiz CAPM question 60
    How well does CAPM work? 62,63,64

    Roll’s critique 63, Ch7(11)

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