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CHAPTER 5 5 - 1 Risk and Return: Portfolio Theory and Asset Pricing Models Portfolio Theory Capital Asset Pricing Model (CAPM) Efficient frontier Capital Market Line (CML) Security Market Line (SML) Beta calculation Arbitrage pricing theory Fama-French 3-factor model 5 - 2 Portfolio Theory Suppose Asset A has an expected return of 10 percent and a standard deviation of 20 percent. Asset B has an expected return of 16 percent and a standard deviation of 40 percent. If the correlation between A and B is 0.6, what are the expected return and standard deviation for a portfolio comprised of 30 percent Asset A and 70 percent Asset B? 5 - 3 Portfolio Expected Return ˆP =wA ˆA + (1 wA )rB =0.3(0.1)+0.7(0.16) =0.142=14.2%. 5 - 4 Portfolio Standard Deviation sp = W2s 2 +(1 WA )2 sB +2WA(1 WA )rAB sA sB = 0.32(0.22)+0.72(0.42)+2(0.3)(0.7)(0.4)(0.2)(0.4) =0.309 5 - 5 Attainable Portfolios: rAB = 0.4 rAB = +0.4: Attainable Set of Risk/Return Combinations 20% 15% 10% 5% 0% 0% 10% 20% 30% 40% Risk, sp ... - tailieumienphi.vn