The development of the theoretical relationship between risk and expected return is built on the portfolio theory and capital market theory.

Question

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The theoretical relationship between risk and expected return is indeed built on portfolio theory and capital market theory. Portfolio theory, introduced by Harry Markowitz in the 1950s, focuses on how investors can construct portfolios to maximize expected return based on a given level of market risk. Capital market theory further extends these concepts, incorporating the Capital Asset Pricing Model (CAPM) which explains how securities are priced in the market based on their risk relative to that of the overall market.

The Development of the Theoretical Relationship Between Risk and Expected