Which of the following statements is CORRECT?
A) The slope of the CML is (M - rRF)/bM.
B) All portfolios that lie on the CML to the right of M are inefficient.
C) All portfolios that lie on the CML to the left of M are inefficient.
D) The slope of the CML is (M - rRF)/M..
E) The Capital Market Line (CML) is a curved line that connects the risk-free rate and the market portfolio.

Question

Quizplus · Accepted Answer

The Capital Market Line (CML) is a straight line that connects the risk-free rate and the market portfolio. The slope of the CML is (M - rRF)/M, where M is the expected return of the market portfolio, rRF is the risk-free rate, and M is the standard deviation of the market portfolio. Therefore, option D is correct. Option A is incorrect because it does not include M in the denominator. Options B and C are incorrect because all portfolios on the CML are efficient portfolios. Option E is incorrect because the CML is a straight line, not a curved line.

Which of the Following Statements Is CORRECT