CO SCI 136 Lecture Notes - Lecture 9: Market Portfolio, Mutual Fund, Market Capitalization
Document Summary
Cost of capital the best expected return available in the market on investments with similar risk. The cost of capital of any investment equals the expected return of available investments with the same beta. This estimate is provided by the security market line equation of the. Capm, which states that given the beta of the investment opportunity, its cost of capital is. In other words; investors will require a risk premium comparable to what they would earn taking the same market risk through an investment in the market portfolio. Market portfolio is the total supply of securities, the proportions of each security should correspond to the proportion of the total market that each security represents. Contains more of the larger stocks and less of the smallest stocks. The investment in each security, i, is proportional to its market capitalization, which is the total market value of its outstanding shares.
