Points along the Capital Market Line represent a combination of a risk-free asset and M (the market portfolio)with the possibility of borrowing beyond point M.

Question

Quizplus · Accepted Answer

This statement is true. The Capital Market Line (CML) represents the possible combinations of a risk-free asset (usually a government bond) and the market portfolio (M). The slope of the CML represents the Sharpe ratio, which measures the excess return per unit of risk. Points above the CML are considered inefficient as they have lower returns for the same level of risk. However, points below the CML are considered inefficient as they have higher risk for the same level of return. Finally, it is possible to borrow or lend at the risk-free rate beyond the point M to achieve a higher return.

Points Along the Capital Market Line Represent a Combination of a Risk-Free