Part
2: Portfolio Analysis and the Capital
Asset Pricing Model

Chapter 8
What is risk?

Risk
characteristics of financial assets
Time horizons and risk—a safe security can be risky
Risk in stock prices—McDonald’s example
Advanced: Using continuously compound
returns to
compute annualized return
statistics
Excel
functions: Sqrt,
Average, Stdevp, Varp,
Frequency, Count, Ln

PPT
for Chapter 8

Chapter 9
Statistics for portfolios

Basics: Mean, standard deviation, covariance,
correlation
Covariance and correlation
Portfolio mean and variance for twoasset portfolio
Using regressions
Advanced: Portfolio statistics for
multiple assets
Excel
functions: Average, Var, Varp, Stdev, Stdevp, Covar, Correl, Trendlines, Slope, Intercept, Rsq

PPT
for Chapter 9

Chapter 10
Portfolio returns and the efficient frontier

Advantage
of diversification
Kellogg and Exxon—a realworld example
Graphing portfolio returns
Efficient frontier and minimum variance portfolio
Correlation and the efficient frontier
Excel
functions: Average, Varp, Stdevp, Regression,
Solver

PPT
for Chapter 10

Chapter 11
Capital asset pricing model and the security market line

Risky
portfolios and the riskless asset
Exploring optimal investment combinations
Sharpe ratio and the market portfolio
The security market line (SML)
Excel
functions: Varp,
Stdevp, Sqrt,
Solver

PPT
for Chapter 11

Chapter 12
Using the security market line to measure investment performance

Jack and
Jill’s investment argument
Measuring the investment performance of
Fidelity’s Magellan Fund
Aggressive versus defensive stocks
Diversification pays
What does academic research tell us about
investment performance?
Excel
functions: Average, Stdevp, Varp, Covar, Intercept, Slope, Rsq, Trendline

PPT
for Chapter 12

Chapter 13
Security market line and cost of capital

CAPM and
cost of equity
Using the SML to compute the cost of equity
Worked out example: Hilton Hotels
Computing the weighted average cost of capital (WACC) using an asset beta b_{Assets}

PPT
for Chapter 13
Additional
problems
Excel
with answers
