Modern Portfolio Theory (MPT) and the Capital Asset Pricing Model (CAPM) (FRM P1 2021 - B1 - Ch5)

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After completing this reading you should be able to:
- Explain modern portfolio theory and interpret the Markowitz efficient frontier.
- Understand the derivation and components of the CAPM.
- Describe the assumptions underlying the CAPM.
- Interpret the capital market line.
- Apply the CAPM in calculating the expected return on an asset.
- Interpret beta and calculate the beta of a single asset or portfolio.
- Calculate, compare and interpret the following performance measures: the Sharpe performance index, the Treynor performance index, the Jensen performance index, the tracking error, information ratio and
Sortino ratio.
0:00 Introduction
0:15 Learning Objectives
0:55 Assumptions Underlying the CAPM
9:21 Interpreting Beta
16:53 Example on Beta
19:57 Derivation of CAPM
21:39 The Capital Market Line
28:53 The Treynor Measure: Analogy
32:41 The Sharpe Measure
35:08 The Jensen Measure
44:54 The Tracking-Error: Example
46:09 The Information Ratio
48:19 The Sortino Ratio

[@erickjimenez4601]

Really well made I understood well thanks professor

[@analystprep]

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[@AlexNangle]

This is so much better than my textbook. So much better. Thank you.

[@pedrofolque7899]

16:52 - Example on Beta
24:49 - CML Example
34:06 - Sharpe Ratio Example

[@quincyreinevergara8822]

wow the information shared here is incredible

[@analystprep]

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[@theamertens6433]

you da bomb! thank you for the clear explanations

[@allblackblue]

Really great way to develop this concepts

[@analystprep]

Glad you like it!

[@alvinchow2024]

It’s a really helpful video

[@manoj-nandasena]

So helpful sir. Thank you so much.

[@analystprep]

Most welcome!

[@raulortiz4998]

WOW 1 week of class resume in 50 minutes

[@analystprep]

:)

[@user-vk5xs1sb6r]

Q

[@Tyokok]

what is the market portfolio? what's special about this tangent portfolio and we must purchase? Thanks!

[@mikeamine375]

thank you for this wonderful video

[@analystprep]

Glad it was helpful! If you like our video lessons, it would be helpful if you could take 2 minutes of your time to leave us a review here: www.trustpilot.com/review/analystprep.com

[@ujjwalupadhyay2447]

sir, why sml is only applied on individual stock and not for portfolios

[@nosao2748]

God Bless You!

[@bahadurmammadov8770]

Thanks you so much
💜

[@analystprep]

You're welcome 😊

[@dhruthij7430]

So nicely explained sir

[@analystprep]

Thanks for liking! If you like our video lessons, it would be helpful to spread the word if you could take 2 minutes of your time to leave us a review at www.trustpilot.com/review/analystprep.com

[@gorthorki]

Thank you so much 😀👌

[@analystprep]

You're welcome 😊

[@djJungleboy]

The sample size for S &P is 500 I assume, but what number and what is being measured for standard deviation of security ( x number of years of return?)

[@richardyeboah3851]

Thank you a lot Sir

[@analystprep]

Most welcome! If you like our video lessons, it would be helpful to spread the word if you could take 2 minutes of your time to leave us a review at www.trustpilot.com/review/analystprep.com

[@shubhendukumar1972]

Thanks a lot

[@analystprep]

Most welcome

[@oisinmcnally5952]

Legend

[@Aim4sixmeals]

Thank you sir

[@analystprep]

Welcome

[@ngunitv]

apply job accounting directing to hr or overral

[@alexs934]

15:33 σ^2m is variance not σm

[@sayednab]

isn't one standard deviation 68%?

[@karpagavalliramachandran5616]

Is this based on the new syllabus? Please let me k ow. Thank you!

[@analystprep]

Hi. Yes, these are the learning objectives from the new syllabus.

[@ngunitv]

apply for accounting

[@ngunitv]

cleanmethotthankyou

[@Xenublax2]

"You forgot Jack Treynor!" - Franco Modigliani, probably.

[@nasratwaha610]

What are the differences between portfolio theory and CAPM?

[@analystprep]

Hi Nasra.
"CAPM simultaneously simplified Markowitz's Modern Portfolio Theory (MPT), made it more practical and introduced the idea of specific and systematic risk. Whereas MPT has arbitrary correlation between all investments, CAPM, in its basic form, only links investments via the market as a whole." Source: ebrary.net/7079/business_finance/what_modern_portfolio_theory/
I hope this helps!

[@abbaabba8978]

@@analystprep yes thks