FINA 385 BMC Review Questions with correct answers/BLOOMBERG MARKET CERTIFICATE REVIEW
• Sharpe, Lintner and Mossin are researchers credited with its development (
the mid 1960’s)
• CAPM is an extension of the Markowitz portfolio selection model
• Derived using principles of Markowitz diversification
• Equilibrium model that underlies modern portfolio theory
• CAPM is a set of predictions concerning equilibrium expected returns on
risky assets.
,FINA 385 BMC Review Questions with correct answers/BLOOMBERG MARKET CERTIFICATE REVIEW
Assumptions of CAPM
•Individual investors are price takers (cannot influence prices)
•Single-period investment horizon
•Individuals have homogenous expectations
•No taxes, transaction costs, or restrictions on short sales (no
market frictions)
•Individuals are rational and mean variance maximizers
•Information is costless and result in no information asymmetry
•There exists unlimited lending/borrowing at the riskless rate
,FINA 385 BMC Review Questions with correct answers/BLOOMBERG MARKET CERTIFICATE REVIEW
What is Market Portfolio and CML
•A market portfolio is a theoretical bundle of investments that include
every type of assets available in the world financial market, with eac
asset weighted in the proportion of its total presence in the market.
•A key insight of CAPM is: Because the market portfolio is the aggrega
of all the identical risky portfolios, it will also have the same weights.
Therefore, if all the investors choose the same risky portfolio, it will b
, FINA 385 BMC Review Questions with correct answers/BLOOMBERG MARKET CERTIFICATE REVIEW
market portfolio.
• Sharpe, Lintner and Mossin are researchers credited with its development (
the mid 1960’s)
• CAPM is an extension of the Markowitz portfolio selection model
• Derived using principles of Markowitz diversification
• Equilibrium model that underlies modern portfolio theory
• CAPM is a set of predictions concerning equilibrium expected returns on
risky assets.
,FINA 385 BMC Review Questions with correct answers/BLOOMBERG MARKET CERTIFICATE REVIEW
Assumptions of CAPM
•Individual investors are price takers (cannot influence prices)
•Single-period investment horizon
•Individuals have homogenous expectations
•No taxes, transaction costs, or restrictions on short sales (no
market frictions)
•Individuals are rational and mean variance maximizers
•Information is costless and result in no information asymmetry
•There exists unlimited lending/borrowing at the riskless rate
,FINA 385 BMC Review Questions with correct answers/BLOOMBERG MARKET CERTIFICATE REVIEW
What is Market Portfolio and CML
•A market portfolio is a theoretical bundle of investments that include
every type of assets available in the world financial market, with eac
asset weighted in the proportion of its total presence in the market.
•A key insight of CAPM is: Because the market portfolio is the aggrega
of all the identical risky portfolios, it will also have the same weights.
Therefore, if all the investors choose the same risky portfolio, it will b
, FINA 385 BMC Review Questions with correct answers/BLOOMBERG MARKET CERTIFICATE REVIEW
market portfolio.
