Use the following three statements to answer this question:
I.The Capital Market Line (CML)must always be upward sloping, and it predicts required returns.
II.The Capital Market Line (CML)is based on expected rates of return, so it is ex post.
III.The Capital Market Line (CML)slope is the Sharpe ratio.
A)I, II, and III are correct.
B)I, II, and III are incorrect.
C)I and III are correct and II is incorrect.
D)I is incorrect, II and III are correct.

Question

Quizplus · Accepted Answer

I. The CML is indeed upward sloping, reflecting that higher expected returns are associated with higher levels of risk.II. The CML is based on expected (ex ante) rates of return, not past (ex post) rates, making this statement incorrect.III. The slope of the CML is indeed the Sharpe ratio, which measures the additional return per unit of risk.

Use the Following Three Statements to Answer This Question