Page 16 - FINAL CFA SLIDES DECEMBER 2018 DAY 12

Session Unit 12:
41. Portfolio Risk and Return: Part 1
We know that!
If A was risky asset and B = risk-free..

Zero

So What?

Two-fund separation theorem -all investors’ optimum portfolios will be made up of some
combination of an optimal portfolio of risky assets and the risk-free asset:

Capital
allocation line tanties

represents
these possible
combinations

of risk-free
assets and the ER = 0.40[E(R risky asset portfolio )] + 0.60(R ),
f
optimal risky 40%A + 60%B
asset portfolio

SD = 0.40 (σ risky asset portfolio )

Lets combine investors’ CAL with his ICs! p.139