When markets are in equilibrium, the CML will be upward sloping:
A) because it shows the optimum combination of risky securities.
B) because the price of risk must always be positive.
C) because it contains all securities weighted by their market values.
D) because the CML indicates the required return for each portfolio risk level.

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 investors require higher returns for taking on additional risk.

When Markets Are in Equilibrium, the CML Will Be Upward