Modern Portfolio Theory and

Investment Analysis, 9th Edition

Elton, Gruber, Brown, & Goetzmann
Chapter 1: Introduction
 Outline of the Book
 The Economic Theory of Choice: An Illustration
Under Certainty
 Conclusion
 Multiple Assets and Risk
Outline of the Book
 Five Parts
 Part 1 provides background material on securities
and financial markets
 Part 2 deals with the subject of portfolio analysis
 Part 3 deals with models of equilibrium prices and
returns in the capital markets
 Part 4 deals with some issues in investment analysis
 Part 5 is concerned with evaluating the investment
process
The Economic Theory of Choice
 The Opportunity Set
 The Indifference Curves
 The Solution
 An Example: Determining Equilibrium Interest
Rates
Figure 1.1 The investor’s opportunity set
Figure 1.2 Indifference curves.
Figure 1.3 Investor equilibrium.
Conclusion
 We need two components to reach a solution:
 A representation of the choices available to the
investor—called the opportunity set
 A representation of the investor’s tastes or
preferences—called indifference or utility curves
Multiple Assets and Risk
 If everyone knew with certainty the returns on
all assets, then the framework just presented
could easily be extended to multiple assets.
Figure 1.4 Investor’s opportunity set with several alternatives.
Copyright 2014 John Wiley & Sons, Inc.

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