MODERN PORTFOLIO THEORY

PORTFOLIO THEORY LESSON PLAN

 

Teaching Materials

• Lesson - Portfolio Theory  (see below for printable lesson)

• Overhead

• Many pre-calculated examples

 

Lesson Activity

1. Define portfolio theory
2. Introduce Markowitz’ Theory
   • Talk about assumptions of the theory
   • Discuss efficient portfolios
   • Concept of Risk/return profile
3. Talk about opportunity set and the risk free rate
   • Ask class if they think a risk free investment really exists
   • Explain it and give examples (T-Bill)
4. Discuss difficulty of measuring risk
   • Ask class why it is so difficult – discuss their answers in terms of practical experience
5. Introduce CAPM
   • explain the model
   • diversifiable risk versus non-diversifiable risk
6. Revisit the concept of beta
   • Talk about how beta for an individual stock is actually calculated
   • Work through examples
7. Introduce CAPM formula
   • look at basic form
   • work through examples
8. Bring in lending and borrowing
   • look at expanded formula
   • work through examples

Assessment/Evaluation

Have students complete worksheet. A passing grade is 70% or greater. 

 

 

 

Lesson Printable Materials - Worksheets

Print out the teaching lesson pages and exercise worksheets for use with this lesson:

 

PORTFOLIO THEORY LESSON
	Portfolio Theory Lesson and Worksheet Lesson and worksheet.
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