Hi, Example 5 requires the use of the formula, but we are being told we can not be expected to use the forumla in the examination. Is it more example 3 that we could be questioned on in working out the average return and total risk?

No you could not. As it says in the lecture notes, you cannot any longer be asked for portfolio theory calculations. However you are expected to understand the basic idea and that is the reason that I have left this lecture up.

You mentioned in the lecture that you will provide a checklist of the formulae that will need to be learned and the ones that are on the sheet. I already have the formula sheet, I wonder if the list of formulas that I need to learn by heart is available ? Other wise, I will just make sure to compile them all throughout your lectures.

Oh dear – I don’t remember saying that I would provide a checklist.

However, it is less relevant these days. As I have written in the Course Notes, the examiner has said that he will not test calculations on portfolio theory and so those formulate are not needed. I have only left the examples there because I think they help understand what is happening (and he can expect you to be able to write about the idea).

Sorry – it was a very long time ago. It has been removed from the notes because (as the notes say) you can no longer be asked for calculations on portfolio theory. You can only be expected to be aware of the idea.

Hi Mr John – Yeah, I realised that it was unlikely but it is better to be safe than sorry. Ok sure I understand now, the examples were helpful and I am glad to know that I will only be requested to write when it comes to portfolio theory.

May I ask, I can also see formulas in the next chapter (capital asset pricing model) which are not in the formula sheet, do I take it as a rule that any formulas included in the notes but not on the formula sheet are important and need to be memorised by heart because they could come in the exam ? (even if unlikely).

I tend to assume that anything in the notes is relevant, so right now I am assuming that any formulas included there should be memorised by heart if not provided in the formula sheet.

in the examples we have had so far we are combining two investments or chose one from a group to combine with an already existing investment. in real life we may have to combine more than 2 investments. is there a formula for this? thank you

It could be, but please make sure you have noticed that the Course Notes stress that the examiner has said that he will no longer ask portfolio calculations (and will no longer therefore give the formula). However he can expect you to be able to explain the idea. That is the reason that I have left the chapter in the notes (and the lectures) – not because you can be asked for the arithmetic, but because it might help you make sense of the idea behind it.

Hasnainsays

The Example you are mentioning on page no 155 I’m unble to find it there!

I had a problem, I know that the best thing to do was to work the question out however just looking at the options. A has a return of 8% and risk of 5% while B provide the same return for a lower risk and also has a positive correlation with Janis current protfolio. Could i have use that to eliminate A immediate/

@odette123, No you cannot eliminate A immediately. Because there is positive correlation, it could mean that the total risk ended up higher. The only way you can check for certain is by calculating the total risk for both alternatives.

kkhatani says

Hi, Example 5 requires the use of the formula, but we are being told we can not be expected to use the forumla in the examination. Is it more example 3 that we could be questioned on in working out the average return and total risk?

Thanks

John Moffat says

No you could not. As it says in the lecture notes, you cannot any longer be asked for portfolio theory calculations. However you are expected to understand the basic idea and that is the reason that I have left this lecture up.

anonymous says

Excellent Lectures!! Thank you so much for putting up these lectures. 馃檪 馃檪 馃檪

Mahoysam says

Hi Mr John,

You mentioned in the lecture that you will provide a checklist of the formulae that will need to be learned and the ones that are on the sheet. I already have the formula sheet, I wonder if the list of formulas that I need to learn by heart is available ? Other wise, I will just make sure to compile them all throughout your lectures.

Thanks, Maha

John Moffat says

Hi

Oh dear – I don’t remember saying that I would provide a checklist.

However, it is less relevant these days. As I have written in the Course Notes, the examiner has said that he will not test calculations on portfolio theory and so those formulate are not needed. I have only left the examples there because I think they help understand what is happening (and he can expect you to be able to write about the idea).

Mahoysam says

Oops! Somehow I commented in the wrong comment!

Kindly see my response below!!

Matthew says

The additional question discussed here is not in the back of the June 2014 notes. Which of the past papers was it on?? Thanks, Matthew

John Moffat says

Sorry – it was a very long time ago.

It has been removed from the notes because (as the notes say) you can no longer be asked for calculations on portfolio theory.

You can only be expected to be aware of the idea.

Mahoysam says

Hi Mr John – Yeah, I realised that it was unlikely but it is better to be safe than sorry. Ok sure I understand now, the examples were helpful and I am glad to know that I will only be requested to write when it comes to portfolio theory.

May I ask, I can also see formulas in the next chapter (capital asset pricing model) which are not in the formula sheet, do I take it as a rule that any formulas included in the notes but not on the formula sheet are important and need to be memorised by heart because they could come in the exam ? (even if unlikely).

I tend to assume that anything in the notes is relevant, so right now I am assuming that any formulas included there should be memorised by heart if not provided in the formula sheet.

Thanks a lot and 馃檪

Maha

John Moffat says

The extra formulae are unlikely. but those in the CAPM chapter just could be needed.

Mahoysam says

Many thanks for your quick response! I will memorise them just to be safe but good to know that it is unlikely to have them 馃檪

Maha

chiclarence says

in the examples we have had so far we are combining two investments or chose one from a group to combine with an already existing investment. in real life we may have to combine more than 2 investments. is there a formula for this?

thank you

olierazz says

i’m thinking you could improve the given formula. since the current formula was given as ‘WaSa+WbSb…’ only, maybe we could add ‘WcSc’ so forth?

John Moffat says

It could be, but please make sure you have noticed that the Course Notes stress that the examiner has said that he will no longer ask portfolio calculations (and will no longer therefore give the formula). However he can expect you to be able to explain the idea.

That is the reason that I have left the chapter in the notes (and the lectures) – not because you can be asked for the arithmetic, but because it might help you make sense of the idea behind it.

Hasnain says

The Example you are mentioning on page no 155

I’m unble to find it there!

bowe says

Thanks for clarifying on covariance.

odette123 says

What is the correct answer 7.33% or 2.71% for current +A?

John Moffat says

@odette123, 7.33% (you can check the answers at the back of the course notes)

odette123 says

I had a problem, I know that the best thing to do was to work the question out however just looking at the options. A has a return of 8% and risk of 5% while B provide the same return for a lower risk and also has a positive correlation with Janis current protfolio.

Could i have use that to eliminate A immediate/

John Moffat says

@odette123, No you cannot eliminate A immediately. Because there is positive correlation, it could mean that the total risk ended up higher. The only way you can check for certain is by calculating the total risk for both alternatives.