Capital Market Theory and Asset Pricing Models: implications of capital market theory on portfolio construction.

Set the expected rate of return between 10 and 14% for the equity portfolio.

Assume a standard deviation of 0.20, which approximates the historical standard deviation of the market.

Assume a risk-free rate of 5%.

In your initial post,

Create a table with data to illustrate nine different blended portfolios, ranging from 100% risk free to 100% equity to 200% equity (which assumes buying on margin). Include your table in your post. The table should include the following:

Weight of the risk-free securities and the equity portfolio.

The blended portfolio expected returns.

The blended portfolio risk.

Graph the capital market line of your equity and risk-free security portfolio. Plot portfolio risk on the x-axis and expected portfolio returns on the y-axis. Feel free to use Microsoft Excel to run these calculations.

Include your graph in your post, and on your graph, the following:

Label the optimal market portfolio M.

Label the 100% bond portfolio B.

Label the section of the capital market line that involves buying the equity portfolio on margin.