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Titman CH 08
Titman CH 08
• Learning Objectives
• Principles Used in This Chapter
1.Portfolio Returns and Portfolio Risk
2.Systematic Risk and the Market Portfolio
3.The Security Market Line and the CAPM
• Key Terms
= 82%
14%
12%
10%
8%
6% Starbucks
Emerson
4%
Electric
2% T-bills
0%
= .14 or 14%
• E(rportfolio)
= WS&P500 E(rS&P500) + WInternational E(rInternational)
= .5 (12) + .5(14)
= 13%
• Portfolio Beta
= .25(1.5) + .25(.75) + .25(1.8) + .25 (.6)
= 1.16
18.0%
16.0%
14.0%
12.0%
Expected Return
10.0%
8.0%
6.0%
4.0%
2.0%
0.0%
0 0.5 1 1.5 2 2.5
BETA
– AEP = 0.74
– DUK = 0.40
– CNP = 0.82
8.0%
7.0% 6.9%
Expected Return
6.0%
5.0%
4.0%
3.0%
2.0%
1.0%
0.0%
0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9
Beta
• Beta coefficient
• Capital asset pricing model (CAPM)
• Correlation coefficient
• Diversification
• Diversifiable risk
• Market portfolio
• Market risk premium
• Non-diversifiable risk
• Portfolio beta
• Security market line
• Systematic risk
• Unsystematic risk