tailieunhanh - Lecture Investments – Chapter 7: Capital allocation between the risky and the risk-free asset

Chapter 7 "Capital allocation between the risky and the risk-free asset" presents the following content: allocating capital - risky & risk free assets, expected returns for combinations, possible combinations, variance for possible combined portfolios, combinations without leverage,. | CHAPTER 7 CAPITAL ALLOCATION BETEEN THE RISKY ASSET AND THE RISKFREE ASSET 1 CAPITAL ALLOCATION BETEEN THE RISKY ASSET AND THE RISK-FREE ASSET Capital Allocation across Risky and RiskFree Portfolios The Risk-Free Asset Portfolios of One Risky Asset and One Risk-Free Asset Risk Tolerance and Asset Allocation Passive Strategies: The Capital Market Line 2 CAPITAL ALLOCATION ACROSS RISKY AND RISK-FREE PORTFOLIOS History shows us that long-term bonds have bee riskier investments than investments in Treasury bills and that stock investments have been riskier still. On the other hand, the riskier investments have offered higher average returns. 3 CAPITAL ALLOCATION ACROSS RISKY AND RISK-FREE PORTFOLIOS Investors, of course, do not make all-ornothing choices from these investment classes. They can and do construct their portfolios using securities from all asset classes. Some of the portfolio may be in riskfree Treasury bills, some in high-risk stocks. 4 CAPITAL ALLOCATION ACROSS RISKY AND RISK-FREE PORTFOLIOS The most straightforward way to control the risk of the portfolio is through the fraction of the portfolio invested in Treasury bills and other safe money market securities versus risky assets. This capital allocation decision is an asset allocation choice—a choice among broad investment classes, rather than among the specific securities within each asset .