The Capital market Line E( CML e(r
The Capital Market Line E(rp ) CML M E(rM) M
The capital market Line The separation Theorem The optimal combination of risky assets for an investor can be deter mined without any knowledge of the investors preferences toward risk and return
The Capital Market Line The Separation Theorem The optimal combination of risky assets for an investor can be determined without any knowledge of the investor’s preferences toward risk and return
The Capital market Line The determination of the optimal combination if risky assets can be made without determining the shape of an inⅴ estor’ s indifference curve The reasoning behind the separation theorem(? A property of the linear efficient set. An important feature of CAPM
The Capital Market Line • The determination of the optimal combination if risky assets can be made without determining the shape of an investor’s indifference curve. • The reasoning behind the separation theorem (?) – A property of the linear efficient set. – An important feature of CAPM
The capital market Line The market portfolio According CAPM, in equilibrium each security must has a nonzero proportion in the composition of the tangency pe portfolio It results from separation theorem which assert that the risky portion of every investor's portfolio is independent of the investor; s risk-return preference
The Capital Market Line • The Market Portfolio – According CAPM, in equilibrium each security must has a nonzero proportion in the composition of the tangency portfolio. «It results from separation theorem which assert that the risky portion of every investor’s portfolio is independent of the investor;s risk-return preference
The Capital market Line When the market approaches equilibrium Each investor want to hold a certain positive amount of each risky security The current market price of each security will be at a level where the number of shares demanded equals the number of shares of shares outstanding. The riskfree rate will be at a level where the total amount of money borrowed equals the total amount of money debt
The Capital Market Line • When the market approaches equilibrium – Each investor want to hold a certain positive amount of each risky security. – The current market price of each security will be at a level where the number of shares demanded equals the number of shares of shares outstanding. – The riskfree rate will be at a level where the total amount of money borrowed equals the total amount of money debt