CML vs SML
This query is : Resolved
Vishnu Nair
(Querist)
23 November 2009
WHATS THE DIFFERENCE BETWEEN 'CAPITAL MARKET LINE(CML)' & 'SECURITY MARKET LINE(SML)'
CS Mitesh Mehta
(Expert)
01 December 2009
Capital Market Line- This is a graphical line which represents a linear relationship between the expected return and the total risk (standard deviation) for efficient PORTFOLIOS of risky and riskless securities. When lending and borrowing possibilities are considered, the capital market line becomes the EFFICIENT FRONTIER starting from the riskless rate for the point of tangency on the efficient frontier of portfolios.
Security Market Line -A linear relationship between the expected rate of return on a security and its SYSTEMATIC RISK indicated by BETA.
Capital Market Line- This is a graphical line which represents a linear relationship between the expected return and the total risk (standard deviation) for efficient PORTFOLIOS of risky and riskless securities. When lending and borrowing possibilities are considered, the capital market line becomes the EFFICIENT FRONTIER starting from the riskless rate for the point of tangency on the efficient frontier of portfolios.
Security Market Line -A linear relationship between the expected rate of return on a security and its SYSTEMATIC RISK indicated by BETA.
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