Dictionary > Finance > C > Capital Market Line

# Finance Dictionary - C Terms

# Capital Market Line

The efficient set of all assets, both risky and riskless, which provides the investor with the best possible opportunities. The line used in the risk-return trade-off to illustrate the rates of return for efficient portfolios depending on the risk free rate of return and the level of risk (standard deviation) for a particular portfolio. In sum, formula for capital market line used to describe the trade-off between expected return and total risk is E(Ri) ¼ Rf þ si sm , where Rf ¼ risk-free rate, E(Rm) ¼ expected return on the market portfolio, E(Ri) ¼ expected return on the ith portfolio,and si, sm ¼ standard deviations of the portfolio and the market, respectively.