Monday, October 26, 2009

As an investor,you can borrow or lend funds at a riskless rate such as the Treasury Bill Rate.Riskless borrowing and lending is the lending thought of as an investment in a riskless security like a savings account or a highgrade commercial paper.

You will end up with a portifolio along the capital market lime (CML).

For a well diversified portifolio,relevant risk is systematic risk measured by Beta (an index of systematic risk).

All investments and portifolio of investments lie along a straight return-to-beta space line called security market line (SML)

The prime rate of interest that one pays to borrow from a local bank could exceed the Treasury Bill Rate,Federal Reserve Board or Central Banks may have limits of the much you can borrow against securities at a percentage of the market value.

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