CFA Practice Question

CFA Practice Question

The capital market line (CML) is
A. the line from the risk-free rate to a point on the efficient frontier such that the line is tangent to the efficient frontier at that point.
B. the line from zero to a point on the efficient frontier such that the line is tangent to the efficient frontier at that point.
C. any line tangent to the efficient frontier.
Explanation: The capital market line (CML) is the new efficient frontier of capital market theory that supersedes the efficient frontier of the Markowitz portfolio theory. An investor can achieve an investment along the line (with the specific risk and return) by investing in the risk-free asset and the risky portfolio represented by the point along the Markowitz efficient frontier at which the CML is tangent.

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