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CAPM

CAPM. The Capital Market Line CML. Drawing the Capital Market Line. Step 1. Plot each portfolio onto the Risk/Return Chart. Return. Rp. Risk. Drawing the Capital Market Line. Step 2. Freehand draw the efficiency frontier by joining the outermost points to form a smooth curve. Return. Rp.

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CAPM

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  1. CAPM The Capital Market Line CML

  2. Drawing the Capital Market Line Step 1. Plot each portfolio onto the Risk/Return Chart Return Rp Risk

  3. Drawing the Capital Market Line Step 2. Freehand draw the efficiency frontier by joining the outermost points to form a smooth curve Return Rp Risk

  4. Drawing the Capital Market Line Step 3. Plot the risk free interest rate CML Por t fol io Return And then draw the capital market line from the risk free point at a tangent (just nicking) to the efficiency frontier Rp Risk

  5. BINGO ITS DONE! Por t fol io Return CML Super-efficient portfolio Efficient Portfolios Optimal Portfolio Efficiency Frontier All portfolios below efficiency frontier are inefficient portfolios Rp Risk

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