ADDING MARKOWITZ AND SHARPE TO PORTFOLIO INVESTMENT PROJECTS

Introductory investments courses revolve around Harry Markowitz’s modern portfolio theory and William Sharpe’s Capital Asset Pricing Model. Nonetheless, the textbook versions of these seminal contributions tend to obscure their economic insights, focusing instead on their mathematical consequences. In this paper, we suggest simple additions to the basic portfolio spreadsheet project that will distinguish the economics (e.g., the market portfolio is efficient) from its necessary consequences (e.g., the beta-expected return relationship is linear). We also show that it is important to use Excel’s MMULT function, not Solver, to find efficient portfolios.