urnalojFinance
toagreeontheprospectsofvariousinvestments-theexpectedvalues,
standarddeviationsandcorrelationcoefficientsdescribedinPartII.
Needlesstosay,thesearehighlyrestrictiveandundoubtedlyunrealistic
assumptions.However,sincethepropertestofatheoryisnottherealism
ofitsassumptionsbuttheacceptabilityofitsimplications,andsincethese
assumptionsimplyequilibriumconditionswhichformamajorpart
ofclassicalfinancialdoctrine,itisfarfromclearthatthisformulation
shouldberejected-especiallyinviewofthedearthofalternativemodels
leadingtosimilarresults.
Undertheseassumptions,givensomesetofcapitalassetprices,each
investorwillviewhisalternativesinthesamemanner.Foronesetof
pricesthealternativesmightappearasshowninFigure5.I