Cml vs sml
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The Capital Market Line (CML) and Security Market Line (SML) are both half-lines that connect the risk-free asset to the market portfolio. The CML is defined in terms of expected return and total risk, while the SML is defined using expected return and systematic risk. Efficient portfolios lie on the CML, offering the highest return for a given level of risk, while all portfolios should lie on the SML according to the Capital Asset Pricing Model equation.
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Cml vs sml
- 1. Riskless Return Capital Market Line (CML) vs Security Market Line (SML) by Riskless Return http://risklessreturn.blogspot.com/
- 2. Riskless Return • According to CAPM, CML and SML are both half-lines that connect the risk-free asset with the market portfolio. • CML is defined in expected return – standard deviation (total risk) space. • SML is defined in expected return – beta (systematic risk) space.
- 5. Riskless Return • Efficient portfolios that offer the highest return for a given level of risk lie on the CML, and inefficient portfolios lie below it. • All portfolios (both efficient and inefficient ones) should lie on the SML. • The equation of SML is the CAPM equation.