Important Points for IC 99 - Asset Management Exam
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There is a utility curve such that it intersects the efficient frontier at a single point - this is the optimum portfolio.
The main objective of modern portfolio theory is to have an efficient portfolio, which is a portfolio that yields the highest return for a specific risk, or, the lowest risk for a given return. Returns can be maximised by selecting an efficient portfolio that is also an optimal portfolio which provides the most satisfaction - the greatest return - for an investor based on his / her risk tolerance.
Low levels of uncertainty shows low potential returns, whereas high levels of uncertainty are associated with high potential returns.
Investors risk estimates are proportional to the variability of returns from the portfolio.
Ex ante expected return calculations are based on probabilities of the future state of economy or market and the expected return in each state.
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