Asked by Marina Castelluzzo on Jul 16, 2024
Verified
Which statement is true regarding the capital market line (CML) ?I) The CML is the line from the risk-free rate through the market portfolio.II) The CML is the best attainable capital allocation line.III) The CML is also called the security market line.IV) The CML always has a positive slope.
A) I only
B) II only
C) III only
D) IV only
E) I, II, and IV
Risk-Free Rate
A revised definition for clarity: The theoretical return of an investment with zero risk, often represented by the yield on government treasury bonds.
Positive Slope
Represents a line or curve on a graph that depicts an increase in value as one moves from left to right, signifying a direct relationship between two variables.
- Distinguish between the concepts of Capital Market Line (CML) and Security Market Line (SML).
Verified Answer
BC
Blanca CeciliaJul 22, 2024
Final Answer :
E
Explanation :
The Capital Market Line (CML) represents the risk-return trade-off in the market for efficient portfolios. It starts from the risk-free rate, passing through the market portfolio, indicating the best risk-return combinations available to investors. It always has a positive slope, reflecting the positive relationship between expected return and risk. The CML is not the same as the Security Market Line (SML), which shows the relationship between expected return and beta for individual securities.
Learning Objectives
- Distinguish between the concepts of Capital Market Line (CML) and Security Market Line (SML).