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by: D S

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Week 2 Notes part 2 FIN 500

D S
UIUC
Introduction to Finance

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COURSE
Introduction to Finance
PROF.
TYPE
Class Notes
PAGES
2
WORDS
KARMA
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This 2 page Class Notes was uploaded by D S on Thursday October 8, 2015. The Class Notes belongs to FIN 500 at University of Illinois at Urbana-Champaign taught by Adam Clark-Joseph in Summer 2015. Since its upload, it has received 22 views. For similar materials see Introduction to Finance in Finance at University of Illinois at Urbana-Champaign.

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Date Created: 10/08/15
Introduction to Finance Week 2 part 2 Professor ClarkJoseph University of Illinois Urbana Champaign October 8 2015 1 Mean Variance Portfolio Optimizations Make sure to review the basic linear algebra and lagrangians stuff given at the end of the lecture if this may not be a strength of yours Know the MV Problem 1 n Min 5 wiwj0ij 2321 875 n 220277 2 77p i1 n i1 Assumptions short selling all assets risky non singular covariance matrix Step by Step notes on how to solve are within the notes If there is a risk free asset than 1 w 1 no longer occurs new solution 3911 Ail 177 There are slides on what happens in the short sale restricted cases which are worth knowing kinda a just in case 2 2 Fund Theorem Keep the same assumptions as before short selling allowed risky assets all investors have the same estimates of means variances and covariances Main Point if seeking minimum variance portfolios then you need only to invest in a combination of two minimum variance portfolio Use the left facing bullet picture sideways parabola picture to explain Memorize the proof since it s in high contrast Talked about the 1 Fund Theorem there is a single fund F of risky assets such that any ef cient portfolio can be constructed as a combination of the fund F and the risk free asset Sharpe Ratio E 7 Pl W 0p Tradeoff between risk and return What is the single fund It s the portfolio of all risky assets Sadly that s not practically so we live With using index funds

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