AFM_Capital Market Line(CML) Analysis

📈 Capital Market Line (CML) Analysis – AFM Lesson 📊

Learn about the Capital Market Line (CML) in this detailed Accounting and Financial Management (AFM) lesson. Understand how the CML is used to evaluate risk-return trade-offs and make optimal investment decisions.

💡 Key Topics Covered:

Definition of CML: A line that shows the risk-return relationship of efficient portfolios, including a combination of the risk-free asset and the market portfolio

Formula for Expected Return on a Portfolio:

𝐸
(
𝑅
𝑝
)
=
𝑅
𝑓
+
𝜎
𝑝
𝜎
𝑚
(
𝐸
(
𝑅
𝑚
)
−
𝑅
𝑓
)
E(R
p
​

)=R
f
​

+
σ
m
​

σ
p
​

​

(E(R
m
​

)−R
f
​

)

Where:

𝐸
(
𝑅
𝑝
)
E(R
p
​

) = expected return of the portfolio

𝑅
𝑓
R
f
​

= risk-free rate

𝜎
𝑝
σ
p
​

= standard deviation of the portfolio

𝜎
𝑚
σ
m
​

= standard deviation of the market portfolio

𝐸
(
𝑅
𝑚
)
E(R
m
​

) = expected return of the market portfolio

Key Concepts:

Risk-free asset

Market portfolio

Efficient frontier

Sharpe ratio and risk-adjusted return

Applications of CML:

Determining expected return for a given risk level

Comparing portfolio performance

Guiding investment allocation decisions

Tips for interpreting CML in exam questions

🎯 Who Should Watch:

AFM and finance students

Investment analysts and portfolio managers

Learners aiming to understand risk-return trade-offs and portfolio optimization

📘 Learn With Manifested Publishers:
Structured lessons, examples, and exercises designed to help learners master AFM concepts and excel in exams.

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