Principles of Portfolio Management FMGT 8060

At the end of this course the student will be able to:

• Justify why investment objectives should be expressed in terms of risk and return
• Assess the factors that may affect an investor’s risk tolerance
• Compare the return objectives of capital preservation, capital appreciation, current income, and total return
• Assess the importance of asset allocation, in terms of the percentage of a portfolio’s return that can be explained by the target asset allocation
• Justify why political and economic factors result in differing asset allocations by investors in various countries
• Interpret capital market theory, including its underlying assumptions
• Assess the effect on expected returns, the standard deviation of returns, and possible risk/return combinations when a risk-free asset is combined with a portfolio of risky assets
• Evaluate the role of the market portfolio in the formation of the capital market line (CML)
• Assess systematic and unsystematic risk
• Explain why an investor should not expect to receive additional return for assuming unsystematic risk
• Generate the capital asset pricing model (CAPM), including the security market line (SML) and beta
• Describe the effects of relaxing capital asset pricing model’s underlying assumptions
• Justify the extension of the domestic capital asset pricing model to an international context (the extended CAPM), while considering the assumptions needed to make the extension
• Calculate, using the SML, the expected return on a security to evaluate whether the security is overvalued, undervalued, or properly valued

Effective as of Fall 2011