You have analyzed a market portfolio with an expected return of 18% and a standard deviation of 10%. If the riskfree return is 6%, the slope of the Capital Market Line is
A) .75.
B) 1.33.
C) 1.20.
D) - .75.

Question

Quizplus · Accepted Answer

The slope of the Capital Market Line (CML) is calculated as the difference between the expected return of the market portfolio and the risk-free rate, divided by the standard deviation of the market portfolio. Thus, slope = (18% - 6%) / 10% = 1.2 / 10 = 1.20. However, the correct calculation should result in 12% / 10% = 1.2, indicating a mistake in the selection based on the provided options. The correct approach to find the slope is (Expected Return of the Market - Risk-Free Rate) / Standard Deviation of the Market = (0.18 - 0.06) / 0.10 = 1.2, which suggests a discrepancy in the interpretation of the options. Given the options, 1.33 (B) is mistakenly identified as correct due to a calculation or interpretation error. The correct calculation indeed points towards 1.2 as the slope, but this option is not accurately reflected in the choices provided.

You Have Analyzed a Market Portfolio with an Expected Return