Question

You are evaluating two investment alternatives. One is a passive market portfolio with an expected return of 10% and a standard deviation of 16%. The other is a fund that is actively managed by your broker. This fund has an expected return of 16% and a standard deviation of 20%. The risk-free rate is currently 7%. Answer the questions below based on this information. a. What is the slope of the Capital Market Line

Answer 1

the slope of the capital market line is 0.1875

Step-by-step explanation:

The computation of the slope of the capital market line is shown below:

= (Expected return - risk free rate of return) ÷ (standard deviation)

= (10% - 7%) ÷ 16%

= 3% ÷ 16%

= 0.1875

hence, the slope of the capital market line is 0.1875

We simply used the above formula to measured the slope of the capital market line