Midterm review guide:

Read the book. In particular:

o Chapter 5

5.1 Rates of return (pp. 111-112)

5.2 Risk and risk premiums (excluding pp. 118 – 120)

5.4 Inflation and real rates of return

5.5 Asset allocation across risky and risk-free portfolios

o Chapter 6

6.1 Diversification and portfolio risk

6.2 Asset allocation with two risky assets

6.3 The optimal risky portfolio with a risk-free asset (excluding the discussion on

eq. #6.10 on p. 162)

6.4 Efficient diversification with many risky assets (pp. 164- first paragraph of

165; p. 167)

6.5 A single-index asset market (pp. 170-176)

o Chapter 7

7.1 The capital asset pricing model

7.2 The CAPM and index models (pp. 201 – 202)

7.4 Multifactor models and the CAPM

7.5 Factor models and the arbitrage pricing theory

Review your class notes.

Work on the problem sets.