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Basic Question 4 of 11
Researchers were able to develop the CAPM by adding what variable to the efficient frontier?
B. Measure of risk
C. Risk-free rate
D. Beta
A. Return on the market
B. Measure of risk
C. Risk-free rate
D. Beta
User Contributed Comments 6
| User | Comment |
|---|---|
| tonypractice | i thought the answer should be beta? ... since the efficient frontier [CML] already included the variable of Rf return ?? |
| julescruis | What they mean is the transition from the Markowitz efficient frontier into the capital market line. The Markowitz efficient frontier did not input the effect of the risk free rate. Adding risk free rate gives you what is being referred to as capital market theory or in the case of this question Capital Asset Pricing Model. |
| hannovanwyk | the efficient frontier only had risky assets remember... |
| loisliu88 | efficient frontier + risk free rate= CAPM? can anyone explain? |
| michlam14 | a bit confused. CAL/CML belongs to which theory? I thought it is the Capital Market theory, but i get confused with modern portfolio theory and CAPM |
| UcheSam | Risk free rate is added to efficient frontier to develop CML while Beta is added to CAPM to develop SML based on AnalystNotes. |
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Learning Outcome Statements
explain the capital asset pricing model (CAPM), including its assumptions, and the security market line (SML)
calculate and interpret the expected return of an asset using the CAPM
CFA® 2025 Level I Curriculum, Volume 2, Module 2.