Scribd
Upload
21 views

Security Analysis & Portfolio MGT

The document discusses portfolio theory and introduces the Capital Asset Pricing Model (CAPM) formula. The CAPM formula calculates the weight (Ci) of each stock in a portfolio based on the stock's beta (βi), the variance of the market index (σm2), and the stock's unsystematic risk (σei2). The document provides an example calculation and solution to demonstrate how to apply the CAPM formula to determine optimal stock weights for a portfolio. It also references a second example problem and solution.

Uploaded by

AJ Suri
Copyright
© © All Rights Reserved
Available Formats
Download as PPT, PDF, TXT or read online on Scribd
21 views

Security Analysis & Portfolio MGT

The document discusses portfolio theory and introduces the Capital Asset Pricing Model (CAPM) formula. The CAPM formula calculates the weight (Ci) of each stock in a portfolio based on the stock's beta (βi), the variance of the market index (σm2), and the stock's unsystematic risk (σei2). The document provides an example calculation and solution to demonstrate how to apply the CAPM formula to determine optimal stock weights for a portfolio. It also references a second example problem and solution.

Uploaded by

AJ Suri
Copyright
© © All Rights Reserved
Available Formats
Download as PPT, PDF, TXT or read online on Scribd
You are on page 1/ 36

FM 303

SECURITY ANALYSIS & PORTFOLIO MGT.

PROF. RANJAN DASGUPTA


MODULE – 3:

PORTFOLIO THEORY
N

σm2 (Ri ─ Rf)βi


σei2
i=1
Ci = N

1 + σm2 βi2
σei2

i =1
Where,
σm2 = Variance of the Market Index
σei2 = Variance of a stock’s movement that is not
associated with the movement of Market
Index i.e. stock’s unsystematic risk.
EXAMPLE- 1:
SOLUTION OF EXAMPLE- 1:
SOLUTION OF EXAMPLE- 2:
N

σm2 (Ri ─ Rf)βi


σei2
i=1
Ci = N

1 + σm2 βi2
σei2

i =1

You might also like