Portfolio Selection and the Capital Asset Pricing Model
In the context of determining an optimal portfolio to recommend to two hypothetical investors, this strucutuerd analysis leads students through a series of steps examining return data for three stocks. The analysis first explores the effects of portfolio formation on returns and volatility. With the addition of a market index and a bond portfolio, students easily recognize how portfolios from from these to investment vehicles may be optimal. The analysis then explores stock betas as a measure of risk and the statistical properties of those betas. At the conclusion, students will have a practical understanding of the capital asset pricing model.