Portfolio Theory and Asset Allocation: Rapid Fire

What this video covers

• Why the most restrictive factor governs suitability when a customer's risk tolerance, time horizon, objectives, and liquidity needs conflict
• The exact difference between growth (steady appreciation) and speculation (high risk for high potential return), and why confusing them is an exam trap
• How diversification eliminates unsystematic (company-specific) risk but leaves systematic (market-wide) risk untouched, and why standard deviation measures total risk while beta measures only systematic risk
• How to calculate CAPM expected return: Risk-Free Rate plus Beta multiplied by the Market Risk Premium (Market Return minus Risk-Free Rate), not beta times flat market return
• Why an investment returning more than its CAPM expectation is undervalued (buy), exactly at expectation is fairly valued with zero alpha (hold), and below is overvalued (sell)
• Why positive alpha means beating the CAPM expectation for the risk taken, not simply beating the raw market return
• The PRIME memory aid for the five systematic risks: Purchasing power, Reinvestment, Interest rate, Market, and Exchange rate risk