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Students learn finance basics.

 

 

MODERN PORTFOLIO THEORY

Concept:   Understanding modern portfolio theory.

Objectives

  • Understand the concept behind Markowitz’ Theory
  • Understand the concept of an efficient portfolio
  • Understand the concept of the Opportunity Set and using borrowing and lending to extend investment opportunities
  • Understand the relationship between risk and reward
  • Understand the principle of CAPM

Suggested Grades:

Ninth Grade - Tenth Grade - Eleventh Grade - Twelfth Grade - Adult Education - Business Education

 

 

PORTFOLIO THEORY LESSON PLAN

 

Teaching Materials

  • Lesson - Portfolio Theory  (see below for printable lesson)

  • Overhead

  • Many pre-calculated examples

 

Lesson Activity

  1. Define portfolio theory
  2. Introduce Markowitz’ Theory
    • Talk about assumptions of the theory
    • Discuss efficient portfolios
    • Concept of Risk/return profile
  3. 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)
  4. Discuss difficulty of measuring risk
    • Ask class why it is so difficult – discuss their answers in terms of practical experience
  5. Introduce CAPM
    • explain the model
    • diversifiable risk versus non-diversifiable risk
  6. Revisit the concept of beta
    • Talk about how beta for an individual stock is actually calculated
    • Work through examples
  7. Introduce CAPM formula
    • look at basic form
    • work through examples
  8. 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. 

 

 

 

Lesson Printable Materials - Worksheets

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

 

PORTFOLIO THEORY LESSON

Portfolio Theory Lesson and Worksheet

Lesson and worksheet.

 

 

 

 

 

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