Capital Market Line(CML)

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Definition: Capital Market Line(CML)

It is the name given to the tangent drawn from the point where market portfolio meets efficient frontier to the point where expected return (plotted on the y axis) equal to the risk free rate of return.

Thus it depicts all the portfolios which are some combination of risk free securities and market portfolios.

CML is used in Capital Asset Pricing Model (CAPM) to deduce the efficient portfolio returns given an expected rate of return ( y coordinate)and a given standard deviation(x coordinate).

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