Quick Finance Tip – Capital Market Line (CML)

Capital Market Line is a special case of the Capital Allocation Line, where the risky portfolio is the market portfolio. The risk-free asset is a debt security with no default, inflation, liquidity, or interest rate risk (U.S T-bills for example). The point at which the Capital Market Line is tangent to the Markowitz Efficient Frontier is the optimal risky portfolio, which is the market portfolio.