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The Capital Market Line CML CAPM

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ReturnReturn Risk Drawing the Capital Market Line Step 1. Plot each portfolio onto the Risk/Return Chart Rp

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ReturnReturn Risk Drawing the Capital Market Line Step 2. Freehand draw the efficiency frontier by joining the outermost points to form a smooth curve Rp

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PortfolioReturnPortfolioReturn Risk Drawing the Capital Market Line Step 3. Plot the risk free interest rate And then draw the capital market line from the risk free point at a tangent (just nicking) to the efficiency frontier CML Rp

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Portfolio ReturnPortfolio Return Risk BINGO ITS DONE! CML Efficiency Frontier Efficient Portfolios Optimal Portfolio All portfolios below efficiency frontier are inefficient portfolios Rp Super-efficient portfolio

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© K. Cuthbertson and D. Nitzsche Figures for Chapter 5 Mean-Variance Portfolio Theory and CAPM (Quantitative Financial Economics)

© K. Cuthbertson and D. Nitzsche Figures for Chapter 5 Mean-Variance Portfolio Theory and CAPM (Quantitative Financial Economics)

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