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Difference Between CML and SML

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CML stands for Capital Market Line. and SML bases for Security Market Line. The CML is a line that is used to demo the rates of return. which depends on riskless rates of return and degrees of hazard for a specific portfolio. SML. which is besides called a Characteristic Line. is a graphical representation of the market’s hazard and return at a given clip. One of the differences between CML and SML. is how the hazard factors are measured. While standard divergence is the step of hazard for CML.

Beta coefficient determines the hazard factors of the SML. The CML measures the hazard through standard divergence. or through a entire hazard factor. On the other manus. the SML measures the hazard through beta. which helps to happen the security’s hazard part for the portfolio.

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While the Capital Market Line graphs define efficient portfolios. the Security Market Line graphs specify both efficient and non-efficient portfolios. While ciphering the returns. the expected return of the portfolio for CML is shown along the Y- axis.

On the contrary. for SML. the return of the securities is shown along the Y-axis. The standard divergence of the portfolio is shown along the X-axis for CML. whereas. the Beta of security is shown along the X-axis for SML. Where the market portfolio and hazard free assets are determined by the CML. all security factors are determined by the SML. Unlike the Capital Market Line. the Security Market Line shows the expected returns of single assets. The CML determines the hazard or return for efficient portfolios. and the SML demonstrates the hazard or return for single stocks. Well. the Capital Market Line is considered to be superior when mensurating the hazard factors. Summary:

1. The CML is a line that is used to demo the rates of return. which depends on riskless rates of return and degrees of hazard for a specific portfolio. SML. which is besides called a Characteristic Line. is a graphical representation of the market’s hazard and return at a given clip. 2. While standard divergence is the step of hazard in CML. Beta coefficient determines the hazard factors of the SML. 3. While the Capital Market Line graphs define efficient portfolios. the Security Market Line graphs specify both efficient and non-efficient portfolios. 4. The Capital Market Line is considered to be superior when mensurating the hazard factors. 5. Where the market portfolio and hazard free assets are determined by the CML. all security factors are determined by the SML.

Cite this Difference Between CML and SML

Difference Between CML and SML. (2016, Dec 08). Retrieved from https://graduateway.com/difference-between-cml-and-sml-essay/

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