Download Portfolio Management in Practice (Essential Capital Markets) by Christine Brentani PDF

By Christine Brentani

First-class rationalization of fund administration for rookies.

This is an effective and well-organised assault at the topic - the structure is obvious and the way it has helped me to appreciate the fundamentals of fund administration and that i comprehend from others that it's also necessary for skilled fund managers. It has long past a way to restoring my religion within the put up Equitable, and so on.

Well definitely worth the cash.

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Extra resources for Portfolio Management in Practice (Essential Capital Markets)

Sample text

The line RfMD is the capital market line (CML). The equation for the CML is: E(Rp) = Rf + E(Rm) – Rf ␴m × ␴p where: E(Rp) = expected return given risk = ␴p E(Rm) = risk-free rate for portfolio m given risk = ␴m Thus, for a portfolio on the CML, the expected rate of return in excess of the risk-free rate is proportional to the standard deviation of that portfolio. 5%, what is the expected return on an efficient portfolio with a risk of 12%? 3% The capital asset pricing model According to the IIMR Investment Management Certificate Official Training Manual in the UK: The capital asset pricing model (CAPM) was developed in the early 1960s from modern portfolio theory by academic finance theorists.

If that company goes bankrupt, the investor might lose 100 per cent of the investment. If, however, the investor owns shares in several companies in different sectors, then the likelihood of all of those companies going bankrupt simultaneously is greatly diminished. Thus, diversification reduces risk. Although bankruptcy risk has been considered here, the same principle applies to other forms of risk. Covariance and correlation The goal is to hold a group of investments or securities within a portfolio potentially to reduce the risk level suffered without reducing the level of return.

For a given level of risk, one investor may demand a higher rate of return than another investor. Indifference curves Suppose the following situation exists: Investment A Investment B Expected return 10% 20% Risk (standard deviation) 5% 10% The question to ask here is, does the extra 10% return compensate for the extra risk? There is no right answer, as the decision would depend on the particular investor’s attitude to risk. A particular investor’s indifference 17 18 Portfolio Management in Practice curve can be ascertained by plotting what rate of return the investor would require for each level of risk to be indifferent amongst all of the investments.

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