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Summary of Chapter I

Geometric vs. arithmetic returns
Capital Market History
Equity Premium=8.5%
standard deviation as a measure of risk
Summary of Chapter II

Risk and Return
Correlation and diversification
The efficient frontier
The efficient frontier with a riskless asset
Summary of Chapter III

iso-utility curves
shortfall approach and Sharpe ratio
tangency portfolio
Summary of Chapter IV

What is tangency portfolio
CAPM equilibrium theory
“Birthday Cake” Proof
Summary of Chapter V

Correlations drive attractiveness of stock
The security market line
idiosyncratic risk is not prices
relationship between risk and return is linear
portfolio beta = weighted average of component betas
Summary of Chapter VI

APT motivated by SML
Arbitrage in expectations
APT does not restrict systematic risk to one factor
Summary of Chapter VII

Beta estimated via regression
Leverage affects beta
DCF using discount rate
M&A using discount rate
project choice
Summary of Chapter VIII

Liquid markets process information
expectations arbitrage happens fast
weak form = past prices
semi-strong form = current and past public information
strong form = all current and past information
technical analysis