The capital market line (CML)uses ____ as a risk measurement,whereas the capital asset pricing model (CAPM)uses ____.
A) Beta; total risk
B) Standard deviation; total risk
C) Standard deviation; systematic risk
D) Unsystematic risk; total risk
E) Systematic risk; beta

Question

Quizplus · Accepted Answer

The CML uses standard deviation as a risk measurement, specifically focusing on systematic risk which is the risk that cannot be diversified away. On the other hand, CAPM uses beta as a measurement which is a measure of systematic risk adjusted for market risk. Therefore, the correct option is C, as it correctly identifies the risk measurement used by CML and CAPM respectively.

The Capital Market Line (CML)uses ____ as a Risk Measurement,whereas