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Optimal Risky Portfolios Chapter 7 1 Bodi Kane Marcus Ch 5

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Number Stocks in Portfolio ,000+ Unique Risk (unsystematic risk) Market Risk (systematic risk) 20 0 p (%) 35 Total Risk

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Portfolios of two risky assets

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=0.19 =19%

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Covariance A measure of the degree to which returns on two risky assets move in tandem. A positive covariance means that asset returns move together. A negative covariance means returns move inversely. Bodi Kane Marcus Ch 5 5

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Correlation Coefficient A measure that determines the degree to which two variable's movements are associated. The correlation coefficient is calculated as: Bodi Kane Marcus Ch 5 6

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Portfolios of two risky assets If DE = 1 Bodi Kane Marcus Ch 5 7

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Portfolio Expected Return as a function of investment proportion Bodi Kane Marcus Ch % 8% Expected Return, Debt Fund Equity Fund W stocks 1.510W bonds

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Problem 5 Bodi Kane Marcus Ch % 12% Expected Return, Debt Fund Equity Fund W stocks 1.510W bonds

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Portfolio Expected Return as a function of standard deviation Bodi Kane Marcus Ch 5 10 =-1 =0 =.30 =1 Risk, p Expected Return, r p D E

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The Optimal Risky Portfolio with Two Risky Assets and a Risk-Free Asset Bodi Kane Marcus Ch 5 11 A = the risk aversion parameter

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The reward-to-volatility (Sharpe) ratio Bodi Kane Marcus Ch 5 12

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r RF MM Risk, p I1I1 I2I2 CAL(P) Optimal Risky Portfolio. P. M rRrR rMrM RR ^ ^ Expected Return, r p The Determination of Complete Portfolio Optimal Complete Portfolio Opportunity Set of Risky Assets

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The optimal Complete Portfolio Bodi Kane Marcus Ch 5 14

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Risk, p Expected Return, r p The Minimum-Variance Frontier Individual Asset Global Minimum- Variance Portfolio Efficient frontier

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P r RF Risk, The Capital Allocation Line (CAL): Expected Return, (%) Opportunity set of risky asset D E The Opportunity Set of The Debt and Equity funds with the optimal CAL and the optimal risky portfolio

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The efficient portfolio set Bodi Kane Marcus Ch 5 17 Efficient Frontier Risky Assets E( r ) E( r 3 ) E( r 2 ) E( r 1 )

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Tugas Kelompok Bodi Kane Marcus Ch 5 18 KlpRDPURDPTRDCRDS Felix -ffs Mandiri Investa PUFortis Prima IIFortis PesonaSchroder Dana Prestasi Plus Venny Schroder Dana Likuid Schroder Dana Obl Ekstra Panin Dana Unggulan Panin Dana Maxima Timothy Manulife DKManulife Obl NgrFortis EkuitraManulife Saham Andalan Hilda Mandiri Investa PUMandiri Investa DUMandiri Investa Aktif Mandiri Investa Atraktif Mathew Mandiri Investa PUFortis rUPIAH Plus II Panin Dana Unggulan Schroder Dana Prestasi Plus Ivana Manulife DanaPasar Uang Manulife Pendapatan Tetap Manulife Dana Berimbang Manulife Dana Ekuitas Gentry Batavia Dana Kas Maxima Manulife Obl Neg Indonesia Manulife Dana Bertumbuh Berimbang Panin Dana Prima Danny Manulife Dana KasManulife Obl Unggulan Manulife Dan Stabil Berimb Manulife Dana Saham Dyson-ffs Mandiri Investa PUMandiri Investa DUManulife Dana Campuran II Manulife Saham Andalan

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Bodi Kane Marcus Ch 5 19 In order to run this model, you must have your Excel's "solver add-in" installed to your computer. To install the "solver add-in", 1. From the menu, choose "TOOLS", 2. Choose, "ADD-INS", 3. In the "Add-Ins Available" list, have your "SOLVER ADD-IN" checked. If you have not chosen the full installment option when you had been installing your Microsoft Office, you might need your original Microsoft Office disks during this configuration. METIN KILIC

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