FRM: Capital market line (CML)

[@HamletNOR]

Thank you! This helped me a great deal! I especcially liked that you explained the basics as in "what is this all for/why are we doing this exercise". Thanks again!

[@bionicturtle]

+HamletNOR You're welcome! We are happy to hear that our videos are so helpful! Thanks for watching!

[@bionicturtle]

Please note: The spreadsheet link in the video is broken. Please use this link for the spreadsheet: bit.ly/1lnxSlG.

[@bionicturtle]

@zynjulia Notice it's labeled market portfolio (two-asset portfolio is illustrative proxy for market portfolio)

[@gujiawei1762]

Super clear! I have trouble understanding the construction of CML and the point of having market portfolio, this really helped a lot.

[@bionicturtle]

+Gu Jiawei We are happy to hear that our video was helpful! Thank you for watching!

[@Epic43v3r]

Bionic Turtle you are amazing. You just cleared so much content in the most elegant way. Thanks so much! I read on all the concepts prior to watching your video, and you just sharpened everything so nicely. Amazing job. Keep up the good work! You teach better than my professor btw.

[@aleeypc]

You are just awesome, better than any professor in our university

[@joecrap12]

Incredible! So much better than my Investment Management professor!

[@KiSKyle]

Thank you for this spreadsheet and your illustration. It really helps me to understand CML.

[@bionicturtle]

@UtterlyButterlyfull you are too kind, thank you for noticing that i do try to use synonyms whenever possible. It takes a little more preparation but I think this is one of the stumbling blocks in finance that, in some cases, makes an idea seem more difficult than it really is. thank you

[@JohnFoxyDebDeb]

Thanks dude, I have a presentation to prepare for next tuesday and your illustrations really helped me prepare my pwpoint.

[@skythra]

@gengarnation Standard deviation is the root of Variance. Or: Standard Deviation squared = Variance

[@bionicturtle]

@piggybabyness yes, agreed, i mispoke: the red (non efficient) curve segment is long A & short B. Thanks!

[@Panoskol]

I realize this is late but, in case anybody has the same question, here goes : The CML has two components : 1) The market portfolio ( the one with the highest Sharpe ratio on the efficient frontier) and 2) the risk-free instrument. Every point on the line represents a mix of these two components, starting all the way to the left where our portfolio contains 100% of the risk-free investment (and 0 σ). So the CML is just a linear function of portfolio risk for the different mixes of the components

[@FarhanAli-sw9jb]

@8:35 cash is a risk free asset but not in this context. It doesn't give you a 7% return in any case

[@tiger-wt8dm]

Well invest the cash in risk free assets it will give you 7%return

[@roryboytube]

How do you plot both efficient frontier and the CML on the same chart? its impossible in excel because although the common x axis is Stan Deviation the CML assumes the optimal portfolio at every point, whereas the frontier has different portfolios at every point. unless you plot every asset mix down to the smallest 1%, i dont see how you can chart both lines off the same Stand Dev. Are we just superimposing for the theory?

[@sjkdec18]

For the sake of clarity, the highest Sharpe Ratio point on the efficient portfolio frontier should be where the CML and the efficient portfolio frontier intersect, correct? And shouldn't that point be the left-most point on the efficient portfolio frontier curve? I ask b/c you graph doesn't look as such!

[@bvgiri]

Can you please post a different link to the spreadsheet? The one you have posted doesn't work. Thanks for the Video!

[@actuallyactuary2787]

Sir I do not understand why we match the linear line and the non-linear line.

[@patrickbog]

Thanks for the movie! But in case I have a portfolio of 10 assets, how do I draw the CML?...

[@onsnbily5688]

Thank u!! How can I get the sheet ? Is there a link?

[@brianogbogu6590]

Hi! Why is the capital market line linear? What's the actual rationale behind this?

[@nutrisoyboy]

How do we know the market portfolio is the tangency portfolio?

[@Ztube111]

Should the STDEV for each stock on X axis if CML be calc from excess returns? Confusing, as E(R) is derived from e.g. daily excess returns as is each Beta..

[@roryboytube]

They are different and cant really be plotted on the same chart

[@F.G.30.4.91]

but how can you get the market portfolio?! and how come that there is a systematic risk?

[@gengarnation]

doesnt variation = standard deviation squared?

[@feverpitch82]

What determines the angle of the CML?

[@vivienneng315]

how do you find the % in Asset A? The market portfolio in Malaysia. Please advice :))

[@1988maple]

cool! u explain better than my lecturer!

[@namcychayada1291]

Please accept my gratitude !

[@KostjaMRH]

Why do you call it CML instead of CAL here ?

[@bengodw]

Thanks a lot! It is very helpful!

[@bionicturtle]

You're welcome! Thank you for watching! :)

[@gnr2391]

Thanks for this presentation. The only thing I wish was that everything was explained a bit slower. It's a lot to take in ten minutes.

[@chaoli528]

Perfectly solved my doubts! Thx~

[@ohblah]

awesome! Just the explanation i needed!

[@kokilvivek3491]

how to invest a negative weight in an asset? -20% for e.g

[@danielwest1848]

To invest a negative value in an asset is meaning we short the asset. ‘Short’ means we have sold the asset in which we do not own under the premise we will buy it back later at a lower value (we make money on a price fall). When dealing in short values you need to recalculate your Expected Return (ER) as it will be negative now for the asset we short (so if the price rises we lose money). Hope this helps

[@samamiri4723]

great video!

[@holly2233]

Thanks for the explanation!

[@fistylo]

great information .thank you

[@Swisspokerboy]

thank you sir! helped a lot!

[@zynjulia]

i think this is CAL not CML

[@shoexy]

Well done !

[@rodrigomartinez11]

thank you!

[@EnhoKuo]

Good job!

[@bionicturtle]

Thank you for watching! :)

[@guillaumebertin5898]

Link to the spreadsheet :) www.editgrid.com/bt/frm_2008/cml_sml_v1.xls‎

[@dipanjandash4485]

thanks sir

[@SebastianMovillaMora]

Thanks!!!!!!!!

[@leeviorel5990]

thanks broski