Chapter 14

Portfolio Theory: An International Perspective


After studying this chapter, you should be able to:

  • Define risk of investment and return on investment.

  • Describe the Markowitz portfolio model.

  • Define the concepts of portfolio return and portfolio risk.

  • Determine market portfolio and optimal portfolio.

  • Discuss the capital asset pricing model (CAPM).

  • Analyse the relationship between the capital market line (CML) and the security market line (SML).

  • Distinguish between systematic risk and unsystematic risk.

  • Gain insight into international portfolio diversification.

14.1 Introduction

Return and risk are the two fundamental factors that govern every investment decision. Although the investment decisions of individuals ...

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