This document discusses key concepts in portfolio analysis and optimization including: 1. Portfolio possibilities sets define the combinations of assets an investor can hold based on constraints like total weights summing to 1. 2. Probability distributions assign probabilities to possible outcomes using subjective probabilities estimated from historical data. 3. The normal distribution is commonly used, characterized by its mean and variance, with outcomes ranging from negative to positive infinity in a symmetric bell curve shape. 4. Utility functions represent investor preferences with increasing but concave curves, and the expected utility criterion selects the portfolio with the highest expected utility.

1. Investments Chapter 7: Fundamentals of Portfolio Analysis

14. The Normal Distribution: V – Illustrations A Normal Probabilty Density Function and its corresponding Cumulative Normal Distribution Function:

15. Normal Distribution Source: © Stocks, Bonds, Bills, and Inflation 2000 Yearbook™ , Ibbotson Associates, Inc., Chicago (annually updates work by Roger G. Ibbotson and Rex A. Sinquefield). All rights reserved.