Use the following three statements to answer this question:
A) I, II, and III are correct.
B) I, II, and III are incorrect.
C) I and III are correct and II is incorrect.
D) I is incorrect, II and III are correct.
I.The CML must always be upward sloping,and it predicts required returns.
II.The CML is based on expected rates of return,so it is ex post.
III.The CML slope is the Sharpe ratio.

Question

Quizplus · Accepted Answer

The Capital Market Line (CML) is upward sloping and predicts required returns, making statement I correct. Statement II is incorrect because the CML is based on expected rates of return, which are ex ante, not ex post. Statement III is correct as the slope of the CML is indeed the Sharpe ratio.

Use the Following Three Statements to Answer This Question