Portfolio mathematics

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6 Terms

1
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What is the capital market line?

It shows the best achievable risk return tradeoff using a risk free asset and the optimal risky portfolio

2
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What is the formula for the optimal allocation of y?

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3
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What is the formula for working out an investors utility?

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4
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What is the capital allocation line?

It shows all possible risk return combinations an investor can achieve by mixing a

Risk free asset and any risky portfolio . The equation is as follows:

<p>It shows all possible risk return combinations an investor can achieve by mixing a </p><p>Risk free asset and any risky portfolio . The equation is as follows:</p><p></p>
5
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What is the sharpe ratio?

It measures risk adjusted performance

The slope of the Capital allocation line = the sharpe ratio of the risky portfolio. The best risky portfolio is the one with the highest sharpe ratio

<p>It measures risk adjusted performance </p><p>The slope of the Capital allocation line = the sharpe ratio of the risky portfolio. The best risky portfolio is the one with the highest sharpe ratio </p>
6
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What is the formula I MUST remember?

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