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Rob's s1452 Notes

πŸ™‹ Section/Student Qs for Lecture 4

Agenda for Saturday Section, July 6 βœ…

  • Slide Review, concentrating on the most important and challenging slides from this week’s lecture.
  • Pages about this lecture on this website. Read 🧭 Getting Oriented for how to find them on the site.
  • Office Hours. Click here for notes and timestamps. Email office hour questions to robecon1452@gmail.com and I will cover them next section.

Click here to learn about timestamps and my process for answering questions.

πŸ“… Questions covered Saturday, July 6

πŸ•£
❔ Can you go over some graphs showing anomalies

βœ” Done during section

πŸ•£ 3:10
❔ Will we have a review session?

βœ” Yes, I’m taking over the class meeting on Wednesday.

Red Herrings in PS Questions

πŸ•£ 5:09
❔ Do Problem Set questions ever include information that isn’t needed to solve the question?

βœ” Yes. Much like in real life, you sometimes have additional information and need to independently identify which information helps you solve a problem.

πŸ•£ 5:09
❔ Feedback Form Message: Hi there, I’m kind of confused by the term β€˜Lending range slope,’ like lending money to a borrower. Isn’t it just the portfolio with 1 risk-free and risky asset?
Page URL: https://1452.robmunger.com/l1/1outline/

βœ” Thanks! I’ve rewritten this.

πŸ•£ 5:09
❔ Feedback Form Message: The equation for standard deviation: arrows aren’t pointing to the terms
Page URL: https://1452.robmunger.com/l1/keyformulas/

βœ” Indeed, I decided to forgoe lining them up because it wouldn’t look good on mobile devices. Instead, I’m switching to color coding and have added color coding to the standard deviation equation. Thanks!

πŸ•£
❔ Feedback Form Message: What is the variance of Nat’s first complete portfolio, with Variance = .135^2 = 0.018225 b/c sqrt(0.018225) = .135 0.018225*100 = 1.8225% Therefore, I think it should be the square root of 182.25 or 13.5%
Page URL: https://1452.robmunger.com/l1/keyformulas/

βœ” Clarified

πŸ•£
❔ Feedback Form Message: Hi Rob, I’m confused about how the Οƒ_p is calculated. Why doesn’t it include a covariance term? ​ =.5Γ—20%+.5Γ—12%=16%
Page URL: https://1452.robmunger.com/l1/diversification/

βœ” It’s a special case.

πŸ•£
❔ Feedback Form Message: The Sharpe ratio of the risky portfolio is the slope of the CAL, and it tells you how much risk-premium we get for each unit of risk we take. How do you interpret the Sharpe ratio of the complete portfolio?

Page URL: https://1452.robmunger.com/l1/rewardtovolatility/

βœ” Just like any other Sharpe Ratio. Note that it is often equal to the Sharpe ratio of the risky portfolio, because the risk-return tradeoff is the same for both portfolios. It’s just that the complete portfolio has a smaller amount of risk and return.

πŸ•£
❔ Feedback Form Message: It would be nice to have the sidebar of menus uncollapsed at default.
Page URL: https://1452.robmunger.com/
βœ”

What’s Beta?

πŸ•£
❔ Feedback Form Message: What’s Beta?
Page URL: https://1452.robmunger.com/l2/bigpicture/
βœ” We covered this during section.

CML vs SML

❔ Feedback Form Message: what is the security market line? is the same CAPM line?
Page URL: https://1452.robmunger.com/l3/2000/

βœ” We covered this during section. The security market line is just the CAL when the risky portfolio is the Market portfolio. CALvCMLvSML