The correct answer is: C. capital market line
The capital market line (CML) is a line that shows the relationship between expected return and risk on efficient portfolios. It is a graph that shows the expected return of a portfolio as a function of its beta, which is a measure of its systematic risk. The CML is upward-sloping, which means that portfolios with higher betas have higher expected returns.
The CML is derived from the capital asset pricing model (CAPM), which is a model that describes the relationship between risk and return for assets. The CAPM states that the expected return of an asset is equal to the risk-free rate of return plus a risk premium that is proportional to the asset’s beta.
The CML is a useful tool for investors because it can help them to identify efficient portfolios. An efficient portfolio is a portfolio that has the highest expected return for a given level of risk. The CML can also be used to calculate the risk premium for an asset.
The other options are incorrect because they do not accurately describe the relationship between expected return and risk on efficient portfolios.
- Option A, the efficient market line, is a line that shows the relationship between expected return and risk for all portfolios, not just efficient portfolios.
- Option B, the attributable market line, is a line that shows the relationship between expected return and risk for a single asset.
- Option D, the security market line, is a line that shows the relationship between expected return and risk for all securities, not just portfolios.