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What is the Capital Market Line?

The Capital Market Line is a complex concept, but put simply, it is a calculation meant to give the investor/analyst a range of potential returns for a portfolio, based on the risk free rate and the standard deviation of the portfolio.

The Capital Market Line is a part of the capital asset pricing model (CAPM) that solves for expected return at various levels of risk. It takes into consideration a portfolio’s risk assets and the risk-free rate.

As such, an investor can alter the capital market line (and expected returns), by altering the relative weights of the risk assets and the risk-free assets in the portfolio.

What is the Security Market Line?
What is a Resistance Line?

Keywords: risk, standard deviation, expected returns, capital market, #Portfolio, capital market line,