Teaching Portfolio Theory in an Equilibrium Setting with the Aid of Spreadsheet Tools

Mean-variance portfoliotheory being part of the core curriculum of mod-ern finance in business education, this chapter presents an asset pricing model based on it in an equilibrium setting. Here, equilibrium pertains to matching of supply and demand of individual assets in an investment market for rational portfolio decisions. An example utilizing various Microsoft Excel features in matrix operations is pro-vided to illustrate the computational task involved. This chapter is intended to make the model less abstract, thus complementing the textbook materials on the model. With computational issues no longer a concern, students can focus their attention on the concepts involved.

Keywords: portfolio theory, capital asset pricing model, CAPM