Definition of Capital Market Line

Capital market line (CML) is a chart that reflects the anticipated return of a portfolio comprising of all conceivable extents between the showcase portfolio and a risk-free resource. The market portfolio is differentiated, carries as it were a precise hazard, and its anticipated return is break even with the anticipated showcase return as an entire. In common terms, the anticipated return of a specific portfolio (E(RC)) can be calculated as takes after


E(Rc) = y × E(RM) + (1 – y) × RF


y = proportion of a market portfolio

E(RM) = expected return of a market portfolio

(1-y) = proportion of a risk-free asset

 RF = risk-free rate

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