FNCE30001 Lecture 3: CAPM
27 Jun 2018
School
Department
Course
Professor
ThebapitatanetPticingModetnammmm
Whatisanetpricing
an ant issomethingexpectedtogeneratereturnsinthe
future
ifwe
know
expected return wecan workout
price
amajordeterminantofexpectedreturn isnuts
Portfolio theory how
should an individualinvert
Anet
pricing howwillthe
inletdeterminetheexpected
returns anavailableanets
Portfolio
theory focuses on individualinvestorswhileanet
pricingfocusesonthemkt
CAP
Misbared on Markowitzportfolio
theoryCdisconsistentwlit
efficient
portfolio
canbe
pricedbyCHL or CAPM CAPM
canatropineindividualsecurities
CAPtlassumption
0Competitivemkts
Allinvestorshaveanidenticalmigreperiod
planninghorizon
Investments are
limitedto publicallytradedfinancialassets
Nomktgfrictions
Mkfeeborrowing alending
availabletoall investors
allinvestors arerationalmeanvariance
optimises
Information iscartters aavailabletoall investors
Homogenousbdpectations everyonedrawsthe sameriskyfrontier
There assumptions the
tangency
portfolioTis infactthemkt
portfolioM
the right CAL is the CML
CAP
MElri Rft Ern rf ofi
where di of Ytiff linoimori lime
on
PortfolioTAPortfotion
Inventor hinfertsproportion yoftheir
wealth Win TAlyin the
mile
freeasset
pEE
WjWtEEhgWwhere total ofinvertors
F
Buttotalborrowing mustequaltotaltending to
PT gnw
wimIn lweight
of anti inportfolio M
CAP
Meqmcanoe Pi EEWiTyWEEgWwith
wig Wi M
Theweightofevery ant in therisky
portfolio
of
each
investorequals
theassetweight
in the mktportfolio
Him
No Fourreasonswhy
Index
funds tracks amkt index diversified
Super
funds investmentsarehighly diversified
samplingtheory margin
oferror aYrn
Marginalinvertorsnet
prices notaverageones
