Estimating betas and Security Market Line

MGT 4850

Spring 2007

University of Lethbridge

Overview

• CAPM and the risk-free asset– CAPM with risk free asset– Black’s (1972) zero beta CAPM

• The objective is to learn how to calculate:– Efficient Portfolios– Efficient Frontier– CML and SML

Calculating the efficient frontier

• Only four risky assets

Find two efficient portfolios

• Minimum Variance

• Market portfolio

• Use proposition two to establish the whole envelope

• CML

• SML

SML using Var/Cov

Regression

SML