Drawing ER Graphs - Lecture notes 16 PDF

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This course has many lectures that will help you excel your midterm and final, I got an A in this class...

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Drawing ER Graphs • •

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2 risky assets • Draw graph using two assets from previous slide What do you need to know? • How this graph is obtained • What each point is • How to get the composition of each point (how much weight in one asset and how much in other asset) if you know the ER and SD of that point • Why does the graph curve that way?

1 risky 1 risk free • How this graph is obtained • What each point is • How to get the composition of each point (how much weight in one asset and how much in other asset) if you know the ER and SD of that point • Why does the graph curve that way?

Find the best portfolio •

Given the two assets from before: • Find the ``best” portfolio with SD=6% • Find the “best” portfolio with ER=8%

Finding the best portfolios when you have Rf=2% Other topics • • •

Diversification • Two assets: when does variance fall more Indifference curves Sharpe ratio • When is it used?...