Which statement is true regarding the capital market line (CML)?I) The CML is the line from the risk-free rate through the market portfolio.II) The CML is the best attainable capital allocation line.III) The CML is also called the security market line.IV) The CML always has a positive slope.
A) I only
B) II only
C) III only
D) IV only
E) I, II, and IV

Question

Quizplus · Accepted Answer

The Capital Market Line (CML) represents the risk-return trade-off in the market for efficient portfolios. It starts from the risk-free rate, passing through the market portfolio, indicating the best risk-return combinations available to investors. It always has a positive slope, reflecting the positive relationship between expected return and risk. The CML is not the same as the Security Market Line (SML), which shows the relationship between expected return and beta for individual securities.

Which Statement Is True Regarding the Capital Market Line (CML)?I)