Which of the following statements about the difference between the SML and the CML is true?
A) The intercept of the CML is the origin, whereas the intercept of the SML is RF.
B) The CML applies to efficient portfolios, whereas the SML applies to all portfolios or securities.
C) The CML can be downward sloping, whereas that is impossible for the SML.
D) The CML and the SML are essentially the same except for the price of risk.

Question

Quizplus · Accepted Answer

The Capital Market Line (CML) applies to efficient portfolios, showing the risk-return trade-off for portfolios that combine the risk-free asset and the market portfolio. The Security Market Line (SML) applies to all portfolios or individual securities, showing the relationship between expected return and beta.

Which of the Following Statements About the Difference Between the SML