In a world where the CAPM holds, which one of the following is not a true statement regarding the capital market line?
A) The capital market line always has a positive slope.
B) The capital market line is also called the security market line.
C) The capital market line is the best-attainable capital allocation line.
D) The capital market line is the line from the risk-free rate through the market portfolio.

Question

Quizplus · Accepted Answer

The capital market line is not the same as the security market line, which is the graphical representation of the CAPM. The capital market line is the line that connects the risk-free asset (usually a T-bill) to the efficient frontier, or the portfolio that offers the highest return for a given level of risk. The slope of the capital market line reflects the market risk premium, or the excess return that investors require for taking on the risk of the market portfolio. Therefore, choices A, C, and D are all true statements regarding the capital market line.

In a World Where the CAPM Holds, Which One of the Following