Capital market line and the security market line

Reference no: EM1357422

1. How does the use of indifference curves help determine which portfolio an investor would choose on the efficient frontier? What do the indifference curves implies about an investor's willingness to bear risk?

2. How are the capital market line (CML) and the security market line (SML) different? What does each represent?

The Modern Portfolio Theory allows an investor to place several different investments under one portfolio. This is what is also known as a Diversified Investment Portfolio. In the past, portfolios were limited to one stock only. This did not allow the investor to pick and chose different investments he or she wanted to sell.
MPT allows for diverse stocks to be included in the same portfolio, thus allowing the investor to buy and sell at different times and allows them to decide which stock will show a better rate of return. The indifference cures will show over time which investment is doing better.

The Capitol Market Line (CML) covers the particular rate of return on a single stock and the Security Market Line (SML) covers the rate of return covering the entire market.

Reference no: EM1357422

Questions Cloud

Determine current value of the company stock : A corporation is not expected to generate a FCF over the next four years. Five years from now, the company anticipates that it will generate a FCF of $1.

Journal entry for property taxes and allowance : Prepare a journal entry for the taxes of Winston County's General Fund on July 1, 2005, the date on which the property taxes for the fiscal ending June 30, 2006, were billed to taxpayers.

How would change if the box were sliding up the plane : The spheres are given the same electric charge Q and it is found that they come to equilibrium when each string is at an angle of 5 with the vertical. Each string is 30 cm long.

Design application that reads arbitary number of integers : Design and implement an application that reads an arbitary number of integers that are in the range of 0 to 50 inclusive and counts how many occurences of each are entered.

Capital market line and the security market line : Determine how does the use of indifference curves help determine which portfolio an investor would choose on the efficient frontier? What do the indifference curves implies about an investor's willingness to bear risk?

Explain how do these areas of capital interrelate : Explain How do these areas of capital interrelate in your organization and How do these areas of capital support the overall area of strategy of your organization

Prepare bank reconciliation and journal entries : Prepare responses to the following assignments from the e-text, Fundamentals of Financial Accounting 1st ed., by Phillips, Libby, and Libby-Identifying Outstanding Checks and Deposits in Transit and Preparing a Bank Reconciliation and Journal Entri..

Needs analysis is important for creating relevant training : Show why a needs analysis is important for creating relevant training - explain why a comprehensive needs analysis that aligns with the competency model is important to successful and relevant training.

Illustrate what are some cultural considerations : Illustrate what are some cultural considerations when managing a global project. How might legal and political implications influence global project selection.

User Account

All Pages