Modern Portfolio Theory Essay

Words: 5171
Pages: 21


Modern Portfolio Theory

Corporate Finance II
Final Paper

Table of Contents

1. Title Page pg. 1

2. Table of Contents pg. 2

3. Introduction/ Executive Summary pg. 3

4. Modern Portfolio Theory pg. 3

5. Portfolio Management pg. 4

6. Controlling the Risk pg. 5

7. Diversification pg. 6

8. CAPM pg. 7

9. Beta: Advantages and Disadvantages pg. 8

10. Options pg. 10

11. Hedging pg. 11

12. Net Present Value (NPV) pg. 12

13. Technical Indicators: pg. 14

14. Efficiency Frontier pg. 15

14. Conclusion pg. 16

15. Bibliography pg. 18

16. Bonus Assignment- Investing Websites
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Managing risk means doing things that preserve your money from the possibility that any investment decision may be very wrong; overall trying to make the smartest possible investments. The level of risk acceptance of an investor determines his/her degree of risk control. What's more is the amount of risk accepted truly depends on the investor; one must decide if they are risky or risk averse in terms of investing. There three main points to help one control their risk when investing. First, an investor should ease into investing by making multiple purchases. This tactic may cost the investor more money if the stock goes straight up after the original purchase. However, it is not money they lose, but actually money that one failed to make by not buying the stock all at once in the first place; and vice versa. Especially for first time investors, it is not wise to invest only in one all at one time because if the stock goes drastically down the losses are much greater. Secondly, the idea of selling a stock simply because of a slight price drop will stop an investors losses in the short term, however if the stock overturns itself and climbs back up beyond the price at which one sold it, the decision to sell will actually cost the investor the profit they would have made if they'd merely kept the stock during the slight dip. Stock prices stagger, and just because the price drops does not mean it