Portfolio Optimization with Risky and Risk-Free Assets

Understanding how to construct an efficient portfolio is one of the most critical skills in modern finance and investment management. This text-based course guides you step-by-step through the core principles of portfolio theory, showing you how combining two risky assets with a risk-free asset enables superior risk-adjusted returns. You will build a solid mathematical and conceptual foundation to evaluate investment opportunities and determine optimal asset weights with confidence. What you'll learn: - Understand core investment terminology including expected return, variance, covariance, and standard deviation - Calculate portfolio risk and return for combinations of two risky assets - Analyze the impact of asset correlation and diversification benefits - Introduce the risk-free asset and determine the Capital Allocation Line (CAL) - Identify the optimal tangency portfolio and compute the Sharpe ratio - Apply modern portfolio theory principles to construct customized investor allocations The course begins with foundational financial definitions and statistical concepts before walking through portfolio mechanics and mathematical derivations. Written explanations and step-by-step calculation examples ensure you grasp every concept clearly without unnecessary complexity. This course is designed for finance students, aspiring analysts, and individual investors seeking a structured introduction to investment theory. No advanced financial background is required. Start reading today to master the foundations of optimal portfolio construction.