Study Guide I

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1.  Using supply and demand to determine interest rates

2.  Holding period return

3.  Arithmetic average return

4.  Geometric average return

5.  Annual percentage rates

6.  Effective annual rate of return

7.  Expected return

8.  Standard deviation

9.  Normal distribution

10.  Indifference curve for risk averse investors

11.  Price of risk

12.  Sharpe ratio

13.  Real vs. nominal rates of interest

14.  Capital allocation line

15.  Market vs. firm-specific risk

16.  Covariance and correlation

17.  Rules of two risky asset portfolios

18.  Investment opportunity set

19.  Mean-variance criterion

20.  Optimal risky portfolio with a risk-free asset

21.  Efficient frontier of risky assets

22.  Indifference curves and the optimal complete portfolio

23.  Separation property

24.  Index model

25.  Assumptions of the capital asset pricing model

26.  Equilibrium with the capital asset pricing model

27.  Capital market line

28.  Risk premium of the market portfolio

29.  Expected return-beta relationship

30.  Security market line

31.  Alpha

32.  Problems with the capital asset pricing model

33.  Index model

34.  Arbitrage pricing theory

35.  Arbitrage pricing theory and the capital asset pricing model

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Recommended Problems

 Chapter 5 – 5, 6, 7a, 18, CFA problems 1, 7, 8, and 9

Chapter 6 – 7, 8, 10, 11, 12, CFA problem 1

Chapter 7 – 4, 5, 9, CFA problem 2

Answers to recommended problems