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5. Define Capital Allocation Line (CAL) and Capital Market Line (CML) and discuss differences between them.

5. Define Capital Allocation Line (CAL) and Capital Market Line (CML) and discuss differences between them.

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Answer #1

Capital Allocation line (CAL): A graphical representation of Risk Vs Return, wherein the CAL displays the return achieved by taking on a certain level of risk with its slope equalling reward to risk ratio.

Capital Market line (CML): A graphical representation of all the optimally feasible portfolios with a combination of risk free asset and market portfolio.

Differences:

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