FM 303

SECURITY ANALYSIS & PORTFOLIO MGT.

PROF. RANJAN DASGUPTA

MODULE – 3:

PORTFOLIO THEORY

NN σσmm

22 (R (Rii ─ R ─ Rff)β)βii σσeiei

22

i=1i=1CCii = N = N 1 + σ1 + σmm

22 β βii22

σσeiei22

i =1i =1

Where,σm

2 = Variance of the Market Index

σei2 = Variance of a stock’s movement that is not associated with the movement of Market Index i.e. stock’s unsystematic risk.

EXAMPLE- 1:

SOLUTION OF EXAMPLE- 1:

SOLUTION OF EXAMPLE- 2:

NN σσmm

22 (R (Rii ─ R ─ Rff)β)βii σσeiei

22

i=1i=1CCii = N = N 1 + σ1 + σmm

22 β βii22

σσeiei22

i =1i =1