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Capital Market Line (CML) Calculator

Compute CML slope and expected returns at target volatility given risk-free rate and market stats.

Capital Market Line (CML)

Compute CML slope and expected return at a target volatility.

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Sharpe Ratio

Risk‑adjusted return.

Guide

Understanding the Capital Market Line and risk-return relationships

  • The CML links portfolio risk (σ) to expected return when combining the market portfolio with the risk‑free asset. The slope equals the market Sharpe ratio.
  • Levered positions extend above the market volatility; de‑levered positions lie between the risk‑free rate and market point.
  • Inputs should be annualized and consistent—use the same time horizon for risk‑free rate, market return, and volatility.
  • Portfolios below the CML are inefficient; those on or above it represent optimal risk‑return trade‑offs.

Frequently Asked Questions

Capital Market Line, risk-return relationships, and portfolio efficiency

What inputs define the CML?

Risk‑free rate, market expected return, and market volatility set the slope and intercept of the CML.

How is CML slope computed?

(Rm − Rf) / σm, which equals the market Sharpe ratio. Higher slopes indicate better risk‑adjusted returns.

What does a higher slope imply?

Greater expected return per unit of risk, improving attractiveness of levering the market portfolio.

Can expected return be below the CML?

Yes; inefficient portfolios lie below the CML, indicating suboptimal risk‑return trade‑off. Consider rebalancing to improve efficiency.

How does leverage show on the CML?

Target σ above market σ implies borrowing at Rf to invest more in the market portfolio, extending along the CML.

Does changing Rf move the CML?

Yes; it shifts up/down and changes slope via the risk premium. Higher risk‑free rates reduce the market premium and flatten the CML.

Is the market point always efficient?

Under CAPM assumptions yes; in practice consider frictions, constraints, and estimation error that may affect efficiency.

What horizon are inputs?

Annualized returns and volatility are typical; be consistent across inputs and match your investment horizon.

Can I use this for target‑date planning?

It provides a simple return‑risk mapping but does not replace full glidepath analysis with age‑based asset allocation.

How often should I update inputs?

At least annually or when risk‑free rates and market conditions change materially. Monitor quarterly for tactical adjustments.

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Capital Market Line (CML) Calculator

Compute CML slope and expected returns at target volatility given risk-free rate and market stats.

How to use Capital Market Line (CML) Calculator

Step-by-step guide to using the Capital Market Line (CML) Calculator:

  1. Enter your values. Input the required values in the calculator form
  2. Calculate. The calculator will automatically compute and display your results
  3. Review results. Review the calculated results and any additional information provided

Frequently asked questions

How do I use the Capital Market Line (CML) Calculator?

Simply enter your values in the input fields and the calculator will automatically compute the results. The Capital Market Line (CML) Calculator is designed to be user-friendly and provide instant calculations.

Is the Capital Market Line (CML) Calculator free to use?

Yes, the Capital Market Line (CML) Calculator is completely free to use. No registration or payment is required.

Can I use this calculator on mobile devices?

Yes, the Capital Market Line (CML) Calculator is fully responsive and works perfectly on mobile phones, tablets, and desktop computers.

Are the results from Capital Market Line (CML) Calculator accurate?

Yes, our calculators use standard formulas and are regularly tested for accuracy. However, results should be used for informational purposes and not as a substitute for professional advice.