When markets are in equilibrium, the CML is upward sloping because:
A) it shows the optimum combination of risky securities.
B) the price of risk must always be positive.
C) it contains all securities weighted by their market values.
D) investors expect returns to increase over time.

Question

Quizplus · Accepted Answer

The Capital Market Line (CML) is upward sloping because it represents the trade-off between risk and return, where the price of risk (market risk premium) is positive, indicating that higher risk is associated with higher expected returns.

When Markets Are in Equilibrium, the CML Is Upward Sloping