Modern Portfolio Theory

5165 Words21 Pages

Modern Portfolio Theory

Corporate Finance II
Final Paper

Table of Contents

1. Title Page pg. 1

2. Table of Contents pg. 2

3. Introduction/ Executive Summary pg. 3

4. Modern Portfolio Theory pg. 3

5. Portfolio Management pg. 4

6. Controlling the Risk pg. 5

7. Diversification pg. 6

8. CAPM pg. 7

9. Beta: Advantages and Disadvantages pg. 8

10. Options pg. 10

11. Hedging pg. 11

12. Net Present Value (NPV) pg. 12

13. Technical Indicators: pg. 14

14. Efficiency Frontier pg. 15

14. Conclusion pg. 16

15. Bibliography pg. 18

16. Bonus Assignment- Investing Websites
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So in different types of situation we will get different types of return depending on which type of investment it is and what the economic situation is at the time (

Portfolio Management:

By selecting securities that have little relationship with each other, an investor is able to reduce relevant risk. Ideally, one would combine their securities in a way that will reduce relevant risk, such as diversification, to optimally manage their portfolio. The decision to invest excess cash in marketable securities involves not only the amount to invest but also the type of securities to invest. To some extent, the two decisions are interdependent. Both should be based on an evaluation of expected net cash flows and the uncertainty associated with these cash flows. In future cash flow patterns are known with reasonable certainty and the yield curve is upward sloping in the sense of long-term securities yielding more than shorter-term ones, a company may wish to arrange its portfolio so that securities will mature approximately when the funds will be needed. Such a cash-flow pattern gives the firm a great deal of flexibility in maximizing the average return on the entire portfolio, for it is unlikely that significant amounts of securities will have to be sold unexpectedly.

Controlling the risk

The simple and timeless definition of risk is the chance of suffering a loss. Portfolio management is largely about managing risk. All
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