Question

Assume that you manage a risky portfolio with an expected rate of return of 17% and a standard deviation of 27%. The T-bill rate is 7%.
You estimate that a passive portfolio invested to mimic the S&P 500 stock index yields an expected rate of return of 13% with a standard deviation of 25%.


What is the slope of the CML? (Round your answer to 2 decimal places.)

Answer 1

Answer:

The slope of the CML = (13% - 7%)/25% = 0.24

Explanation:

Given that:

expected rate of return of 17%

standard deviation of 27%.

The T-bill rate is 7%.

You estimate that a passive portfolio invested to mimic the S&P 500 stock index yields an expected rate of return of 13% with a standard deviation of 25%.

The slope of the CML is

Slope of the CML = (Expected return of Market - Risk free return)/Standard deviation of market

The slope of the CML = (13% - 7%)/25% = 0.24

= (0.13 - 0.07) /0.25

= 0.24