Learning Outcome Statements

1. Major Return Measures

a. calculate and interpret major return measures and describe their appropriate uses;

2. Variance and Covariance of Returns

c. calculate and interpret the mean, variance, and covariance (or correlation) of asset returns based on historical data;

3. Historical Return and Risk

b. describe characteristics of the major asset classes that investors consider in forming portfolios;

4. Risk Aversion and Portfolio Selection

d. explain risk aversion and its implications for portfolio selection;

5. Portfolio Risk

e. calculate and interpret portfolio standard deviation;

f. describe the effect on a portfolio's risk of investing in assets that are less than perfectly correlated;

6. Efficient Frontier

g. describe and interpret the minimum-variance and efficient frontiers of risky assets and the global minimum-variance portfolio;

7. Optimal Portfolio

h. discuss the selection of an optimal portfolio, given an investor's utility (or risk aversion) and the capital allocation line.