Modern Portfolio Theory
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 …show more content…
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 longterm securities yielding more than shorterterm ones, a company may wish to arrange its portfolio so that securities will mature approximately when the funds will be needed. Such a cashflow 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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