reading the FRM part I book 1 on CAPM (p. 75) I noticed that the text refers to the relationship between beta and expected return as the Capital Market Line. To me this is wrong as what they are describing is the Security Market Line. There is an important distinction between the two as...
The CML contains ONLY efficient portfolios (and plots return against volatility; aka, total risk) while the SML plots any portfolio (and plots return against beta; aka, systematic risks) including inefficient portfolios.
The XLS David used in the video is located here https://trtl.bz/2Fru70r
These values are taken from the P1.T1.Amnec_Ch4.xls under the RAPM tab.
Asset A - 50%
Asset B - 50%
Covariance (Port, Market) - 0.0135
Beta - 1.062
Expected Return (beta) - 10.4% ( calculated from SML i.e. Rf+Beta*(Rm-Rf)
Expected return (checking) - 12.5% ( calculated by taking...
As I read the chapters on CAPM, I'm a bit confused as to what's the relationship between SML, CML and CAPM. The book seem to associate CAPM exclusively with SML, but CML is also in the same chapter.
Could you kindly explain a that's the association between CML to CAPM. Is CML also...