Which of the following statements is CORRECT?
A) the slope of the cml is (m- rrf)/bm.
B) all portfolios that lie on the cml to the right of σm are inefficient.
C) all portfolios that lie on the cml to the left of σm are inefficient.
D) the slope of the cml is (m - rrf)/σm.
E) the capital market line (cml) is a curved line that connects the risk-free rate and the market portfolio.

Question

Quizplus · Accepted Answer

The correct formula for the slope of the CML is (m - rrf)/σm, where m is the expected return on the market portfolio, rrf is the risk-free rate, and σm is the standard deviation of the market portfolio. Option A is incorrect as it includes the term bm, which is irrelevant to the calculation. Options B and C are incorrect as portfolios to the right or left of σm may still be efficient based on their risk-return characteristics. Option E is partially correct but does not include the formula for the slope of the CML.

Which of the Following Statements Is CORRECT