Explain the Modern portfolio theory
Explain the Modern portfolio theory.
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In the Modern Portfolio Theory world of N assets there are 2N + N(N − 1)/2 parameters: standard deviation, one per stock; expected return, one per stock; correlations, among any two stocks (select two from N without replacement, order unimportant). To Markowitz all investments and all portfolios should be compared and contrasted through a plot of expected return versus risk that measured by standard deviation. When we write µA to shows the expected return from investment or portfolio A (and the same for B and C, etc.) and σB for its standard deviation after that investment/portfolio A is at least as fine as B if µA ≥ µB and σA ≤ σB.
The mathematics of risk and return is extremely simple. See a portfolio, Π, of N assets, along with Wi being the fraction of wealth invested into the ith asset. The expected return is subsequently
and the standard deviation of the return, therefore the risk is
Here ρij is the correlation among the ith and jth investments, along with ρii = 1.
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Mr. James K. Silber, an avid international investor, only sold a share of Rhone-Poulenc, a French firm, for FF50. The share was bought for FF42 year ago. Now the exchange rate is FF5.80 per U.S. dollar and was FF6.65 per dollar a year ago. Mr. Silber attained
What is GATT and what is its goal?
Boeing Company is expecting to have EBIT next year of $10 million, with a standard deviation of $5 million. Boeing has $40 million in bonds with coupon of 8%, selling at par, which are being retired at the rate of $3 million annually. Boeing also has 200,000 shares of preferred stock, which pays ann
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