For the last five years the S&P 500 has had an average quarterly return of 4.5% and a standard deviation of 11.6%. If the average riskfree return was 2.2% per quarter, the slope of the S&P 500's CML is
A) .42%.
B) .02%.
C) 3.62.
D) .2.

Question

Quizplus · Accepted Answer

The slope of the Capital Market Line (CML) is calculated by subtracting the risk-free rate from the expected return of the market portfolio and then dividing by the standard deviation of the market portfolio. Here, it's (4.5% - 2.2%) / 11.6% = 0.2 or 20%.

For the Last Five Years the S&P 500 Has Had