# capital market line

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## Capital market line (CML)

The line defined by every combination of the risk-free asset and the market portfolio. The line represents the risk premium you earn for taking on extra risk. Defined by the capital asset pricing model.

## Capital Market Line

In the capital asset pricing model, a line that plots the extra return an investor expects for each change in the level of risk. Rational investors expect higher returns for riskier assets and the capital market line shows this graphically. A portfolio that accurately reflects the capital market line is considered a Markowitz efficient portfolio. The slope of the capital market line is a calculation of the equilibrium market price of risk. See also: Beta.

## capital market line

The line used in the capital-asset pricing model to present the rates of return for efficient portfolios. These rates will vary depending upon the risk-free rate of return and the level of risk (as measured by beta) for a particular portfolio. The capital market line shows a positive linear relationship between returns and portfolio betas. Also called

*market line*. See also alpha, beta, systematic risk.Want to thank TFD for its existence? Tell a friend about us, add a link to this page, or visit the webmaster's page for free fun content.

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