Investing 101

Lesson 3: New Investment Technology

Lesson 3 Optional Reading Assignment

Time Estimate 60 minutes

Resource From the required textbook, A Random Walk Down Wall Street by Burton Malkiel, read:
Part Three: "The New Investment Technology," pages 227-310.

Objectives In this week's reading assignment, you'll learn about the current academic theories towards the goal of developing improved methods for investing, that are discussed at universities today.

Key Ideas from Reading Assignment

• Learn the theories behind Modern Portfolio and Capital Asset Pricing Theory.
• Discover the weaknesses of these theories and learn what new theories are under development.

Study Questions Based on the reading assignment, answer the following questions. These review questions are for self-study purposes only.

1. Describe Modern Portfolio Theory and how it influences investing styles.
2. Describe Capital Asset Pricing Theory and how you might use its model for planning your long-term portfolio.
3. Discuss the weaknesses of MPT and CAPT and what new theories are being developed to improve on these.
4. Do you think we will ever find a way to invest risk free? Why or why not?
5. In reading these theories, what have you learned that you will put into use building your own portfolio?

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