Find out expected return on the index and slandered devotion
Find out expected return at last asset when return on the index and slandered devotion is given?
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Let us show the expected return on the index with µM and its standard deviation with σM. The expected return upon the ith asset is then
µi = αi + βiµM
and the standard deviation
σi = √(β2iσ2M + e2i)
The return is given as follows, if we have a portfolio of such assets,
We have
µΠ = αΠ + βΠE[RM] = αΠ + βΠµM.
Likewise the risk in Π is measured with
Note that when the weights are all about similar, N-1, then the last terms inside the square root are also O(N-1). Therefore, this expression is, here to leading order as N →∞,
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