### CFA Practice Question

There are 546 practice questions for this topic.

### CFA Practice Question

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 ______.

A. 1
B. 0.46
C. 1.91

Slope = rise/run = (16% - 5%) / (24% - 0%) = 0.46

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.
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)