The ________ connects the risk-free security with the optimal domestic portfolio.
A)security market line
B)capital asset pricing model
C)capital market line
D)none of the above

Question

Quizplus · Accepted Answer

The Capital Market Line (CML) is a line that connects the risk-free asset with the optimal portfolio that consists of risky assets. It shows the trade-off between risk and return for efficient portfolios with different levels of risk. The CML is derived from the Capital Asset Pricing Model (CAPM), which is a model that describes the relationship between risk and expected return. However, the Security Market Line (SML) is a line that shows the expected return of an asset given its systematic risk, as measured by beta, according to the CAPM. Therefore, the most appropriate answer is C, Capital Market Line.

The ________ Connects the Risk-Free Security with the Optimal Domestic