This module covers modern portfolio theory, including the efficient frontier, capital asset pricing model, and the efficient market hypothesis. Behavioral finance, a challenge to the efficient market hypothesis, is also covered. Equity valuation using the dividend discount model and ratio analysis is also addressed, along with widely used performance evaluation measurements-Jensen (alpha), Sharpe, and Treynor.

2-1 Explain terminology related to modern portfolio theory (MPT) and the Markowitz efficient frontier model, and relate the concepts of risk and return to modern portfolio theory.
2-2 Evaluate the capital asset pricing model (CAPM) as it relates to the efficient frontier, and the creation of the security market line (SML).
2-3 Evaluate investment alternatives to select investment portfolios based on modern portfolio theory principles.
2-4 Explain the three forms of the efficient market hypothesis and distinguish among arguments supporting and opposing the EMH.
2-5 Evaluate and explain stock market anomalies.
2-6 Appraise efficient market hypothesis concepts as they relate to other investment theories and behavioral finance.
2-7 Calculate the intrinsic value of a stock using various stock valuation techniques or calculate the expected return of a stock.
2-8 Evaluate the appropriateness of investment decisions based on stock valuation models.
2-9 Explain the various components of the investment policy statement (IPS).
2-10 Calculate one or more stock performance measurement indexes for given portfolio returns and risk.

Author: Craig Kinnunen, MS, CFP®

Craig Kinnunen, MS, CFP® is an associate professor at the College for Financial Planning. Prior to joining the College, Craig enjoyed a long and successful career in personal financial planning and wealth management. Craig’s enthusiasm for financial planning extends beyond the classroom, as he also spends time providing pro bono financial education and individual financial counseling to members of the Colorado National Guard. Craig earned a bachelor of science degree in accounting from Northern Michigan University and followed that up with a master of science degree in finance from the University of Colorado in Denver. You can contact Craig at craig.kinnunen@cffp.edu..

Complexity Level: Advanced