**PORTFOLIO THEORY LESSON PLAN**

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Teaching Materials**

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Lesson Activity**

- Define portfolio theory
- Introduce Markowitz’ Theory
- Talk about assumptions of the theory
- Discuss efficient portfolios
- Concept of Risk/return profile

- Talk about opportunity set and the risk free rate
- Ask class if they think a risk free investment really exists
- Explain it and give examples (T-Bill)

- Discuss difficulty of measuring risk
- Ask class why it is so difficult – discuss their answers in terms of practical experience

- Introduce CAPM
- explain the model
- diversifiable risk versus non-diversifiable risk

- Revisit the concept of beta
- Talk about how beta for an individual stock is actually calculated
- Work through examples

- Introduce CAPM formula
- look at basic form
- work through examples

- Bring in lending and borrowing
- look at expanded formula
- work through examples

Assessment/Evaluation

Have students complete worksheet. A passing grade is 70% or greater.

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Lesson Printable Materials -
Worksheets**

Print out the teaching lesson pages and
exercise worksheets for
use with this lesson: