Financial Markets: 1. Portfolio theory 0.0 / 5 ? EconomicsFinance UniversityAll boards Created by: charlieCreated on: 13-01-18 14:44 Utility Function measure to compare portfolios with different risk and expected return from investors point of view 1 of 14 Indifference curve Set of portfolios giving same utility level 2 of 14 Capital allocation line (CAL) Shows risk-return combinations available to investors in the market 3 of 14 Sharpe ratio Slope of CAL (reward for increasing risk) 4 of 14 Optimal allocation to risky asset (y*) . 5 of 14 Expected return (2 risky assets) . 6 of 14 Variance (2 risky assets) . 7 of 14 Standard deviation (2 risky assets) . 8 of 14 Weights of risky assets (using SD) . 9 of 14 Finding optimal risky portfolio (Tangency portfolio) (P): STEP 1 Optimal weights of 2 risky assets 10 of 14 Finding optimal complete portfolio (Tangency to I.C) (C): STEP 2 Deciding where to sit on CAL (y*) 11 of 14 Correlation (2 risky assets) . 12 of 14 Expected return (>2 risky assets) . 13 of 14 Variance (>2 risky assets) . 14 of 14
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