![]() ![]() ![]() 816, 916, 11-66, 1227 Deaves v CML Fire and General Insurance Co. ![]() Given a risky asset (portfolio) A and the riskfree asset, all combinations of portfolio A and the riskfree asset lie along the CAL for portfolio A. /rebates/&252fcal-vs-cml. 2-67 Daum v Superior Court Sutter County, 228 Cal App 2d 283 39 Cal Rpr. The assumptions common to these three lines are that: There is a riskfree asset (whose standard deviation of returns is zero, and whose expected return in known) There are risky assets (whose expected returns, standard deviations of returns, and correlations of returns are known) An investor can lend or borrow any amount at the riskfree rate An investor can buy any amount of a risky asset Capital Allocation Line (CAL) Technically, there isn't a CAL; there are infinitely many CALs: one for each risky asset (or portfolio of risky assets). We'll characterize each one and try to eliminate the confusion. The Capital Allocation Line (CAL), Capital Market Line (CML), and Security Market Line (SML) can be confused easily, and for good reason: the graphs look virtually identical, the assumptions under which they are constructed are essentially the same, and their implications are similar. ![]()
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