文档介绍：INVESTMENTS
ChapterChapter 33
CapitalCapital allocationallocation betweenbetween thethe riskyrisky
assetasset andand thethe riskrisk--freefree assetasset
INVESTMENTS
CapitalCapital allocationallocation
The choice of proportion in safe asset and
proportion in risky asset;
Most institutional investors follows top-
down analysis---The first part is asset
allocation and the next part is security
selection decision.
INVESTMENTS
CapitalCapital allocationallocation acrossacross riskyrisky andand riskrisk--
freefree portfoliosportfolios------exampleexample
Total wealth 300,000;
90,000 in money market;
The remaining is in risky assets---113,400
in IBM and 96,600 in GM
The risky portfolio is 54% in IBM, and
46% in GM;
plete portfolio is 30% in risk-free
asset; 70% in risky portfolio.
INVESTMENTS
PortfolioPortfolio ofof oneone riskyrisky assetasset andand oneone riskrisk--
freefree assetasset
Weight in risky portfolio is y, in risk-free
asset is 1-y;
Return on the risky portfolio is Rp, return on
risky free asset is Rf;
Suppose E(Rp ) =15%,σ p = 22%, R f = 7%
Portfolio return is RC = yRp + (1− y)R f
INVESTMENTS
continuedcontinued
The expectation of the portfolio return is
E(RC )= yE(Rp )+ (1− y)R f
= R f + y[E(Rp ) − R f ]
= 7 + y(15 − 7)
Standard deviation of the portfolio return is
σ