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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