portlofio

chandniwadhwani92
Finance Junkie
Posts: 166
Joined: Mon Oct 06, 2014 7:36 am

portlofio

Postby chandniwadhwani92 » Mon Oct 27, 2014 2:59 pm

In scheswer it is given modern portfolio results in equilibrium expected returns for securities and portfolio that are linear function of each security or portfolio market risk.
What does equilibrium expected return and linear function of each security means??/

What does modern portfolio theory states?

edupristine
Finance Junkie
Posts: 722
Joined: Wed Apr 09, 2014 6:28 am

portlofio

Postby edupristine » Wed Oct 29, 2014 10:43 am

Modern Portfolio theory attempts to maximize portfolio expected return for a given level of portfolio risk or alternatively minimize risk for a given level of expected return.

The returns are linear functions of each security or portfolio market risk. This means that the returns and risks associated with a security are linearly related as shown in the formula below.

Expected return = risk free rate + (std dev)* (Exp return on portfolio - risk free rate)/std dev of portfolio


Return to “CFA Level I”



cron

Disclaimer

Global Association of Risk Professionals, Inc. (GARP®) does not endorse, promote, review or warrant the accuracy of the products or services offered by EduPristine for FRM® related information, nor does it endorse any pass rates claimed by the provider. Further, GARP® is not responsible for any fees or costs paid by the user to EduPristine nor is GARP® responsible for any fees or costs of any person or entity providing any services to EduPristine Study Program. FRM®, GARP® and Global Association of Risk Professionals®, are trademarks owned by the Global Association of Risk Professionals, Inc

CFA Institute does not endorse, promote, or warrant the accuracy or quality of the products or services offered by EduPristine. CFA Institute, CFA®, Claritas® and Chartered Financial Analyst® are trademarks owned by CFA Institute.

Utmost care has been taken to ensure that there is no copyright violation or infringement in any of our content. Still, in case you feel that there is any copyright violation of any kind please send a mail to abuse@edupristine.com and we will rectify it.