Which of the following statements about the difference between the SML and the CML is TRUE?
A)The intercept of the CML is the origin while the intercept of the SML is RF.
B)CML consists of efficient portfolios,while the SML is concerned with all portfolios or securities.
C)CML could be downward sloping while that is impossible for the SML.
D)CML and the SML are essentially the same except in terms of the securities represented.

Question

Quizplus · Accepted Answer

The CML is concerned only with efficient portfolios, while the SML considers all portfolios or securities. The intercept of the CML is the risk-free rate, while the intercept of the SML is the origin. The CML can never be downward sloping, while the SML must always be upward sloping. Although the two lines are similar in concept, they are not essentially the same.

Which of the Following Statements About the Difference Between the SML