Portfolio Theory: An International Perspective


After studying this chapter, you should be able to:

  1. Define risk and return.
  2. Describe the Markowitz portfolio model.
  3. Define the concepts of portfolio return and portfolio risk.
  4. Determine market portfolio and optimal portfolio.
  5. Discuss the capital asset pricing model (CAPM).
  6. Analyse the relationship between the capital market line (CML) and the security market line (SML).
  7. Distinguish between systematic risk and unsystematic risk.
  8. Gain insight into international portfolio diversification.


Return and risk are the two fundamental factors that govern every investment decision. Several factors influence the investment decisions of individuals or organizations, ...

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