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.
References in periodicals archive ?
The capital market line is the line that begins at the risk-free rate of return and "just touches" the efficient frontier.
Interestingly, this investor can increase return without increasing risk by alternatively investing X percent in the market portfolio and (1-X) percent in the risk-free treasury bill, and reach a point on the capital market line that is directly above the minimum variance portfolio.
Input the new risk-free rate in cell C32 and use solver to maximize the capital market line in cell B138 just like before.
And contrary to the first shortfall constraint, the capital market line CML cannot be reached by any feasible investment policy anymore.
This investment policy is feasible but does not attain the capital market line (which may serve as the ultimate benchmark, see the concluding section).
In all, the insurer's investment policy increasingly falls short of the capital market line when the funding ratio falls.
implying that the optimal portfolio of (23) will correspond to a point on the capital market line and is given by
This implies that the optimum of problem (75) will also correspond to a point on capital market line.
But from the reasoning that led to (68), we know that in (96), it suffices to consider the portfolios on the capital market line.

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