---
title: "What do you understand by capital market line?"  
description: "What do you understand by capital market line?"  
author: "Darshit Khatri"  
published: 2017-11-14  
canonical: https://answers.mindstick.com/qa/30539/what-do-you-understand-by-capital-market-line  
category: "share market"  
tags: ["share market", "capital market"]  
reading_time: 1 minute  

---

# What do you understand by capital market line?

What do you understand by capital market line?

## Answers

### Answer by Hitesh Vohra

- The **capital market line (CML)** depicts portfolios that have the best risk-reward ratio. It's a theoretical notion that encompasses all portfolios that combine the risk-free rate of return and a market portfolio of hazardous assets in the most optimal way.
- All investors will take a position on the capital market line, in equilibrium, by borrowing or lending at the risk-free rate, because this optimises return for a given degree of risk, according to the capital asset pricing model (CAPM).
- The capital market line (CML) depicts portfolios that have the best risk-reward ratio.
- The capital allocation line (CAL) is a specific instance of the CML in which the risk portfolio is the market portfolio. As a result, the Sharpe ratio of the market portfolio equals the slope of the CML.

**Read More: [What are the different types of Equity Market?](https://answers.mindstick.com/qa/30538/what-are-the-different-types-of-equity-market)**


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