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Basic Question 0 of 4
The risk-free rate of return is 5%. The market portfolio (M) has an expected return of 16% and a standard deviation of 24%. The slope of the capital market line (CML) is ______.
B. 0.46
C. 1.91
A. 1
B. 0.46
C. 1.91
User Contributed Comments 10
| User | Comment |
|---|---|
| danlan | CML, slope = excess return/sigma=(return-RFR)/sigma=0.46 |
| julamo | Can only be the CML if it's made obvious that the standard deviation is one of the independant variables. |
| fahad | Like the definition rise/run |
| bmeisner | If it was asking for the SML the slope would have been (16-5)/1 = 11 because the beta of the market portfolio is 1 and the line runs from risk free point at 0 beta to market return at 1 beta. Given the answers it had to be asking for the CML. |
| Smiley225 | Slope of SML = market risk premium. i.e 11 in this case |
| Nightsurfer | Slope of CML uses s.d. in the denominator. |
| cfabuzz | slope is equal to tan CML, which is y/x. so (0.16-0.05)/0.24 -> sharpe ratio = 0.46 |
| dravinskis | Slope CML = Sharpe Ratio |
| DonAnd | right on the money dravinskis |
| khalifa92 | y = a + b*x b: is the slope E(Rp) = Rf + (Rm-Rf)/sigma (market) * sigma (portfolio) |
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Learning Outcome Statements
describe the implications of combining a risk-free asset with a portfolio of risky assets
explain the capital allocation line (CAL) and the capital market line (CML)
CFA® 2025 Level I Curriculum, Volume 2, Module 2.