BANKING AFFAIRS

Detailed explanation-1: -Capital Market Line is firstly initiated by William Sharpe. The capital market line (CML) represents portfolios that optimally combine risk and return.

Detailed explanation-2: -Capital Market Line (CML) History In 1952, The efficient frontier of optimal portfolios was identified by Markowitz. Soon after, in 1958, James Tobin included the risk-free rate to modern portfolio theory. Another pioneer, William Sharpe developed the CAPM in the 1960s. He also won a Nobel prize for his work.

Detailed explanation-3: -The CAPM describes the relationship between systematic risk and expected returns, and states that taking on more risk is necessary to earn a higher return. He is also known for creating the Sharpe ratio, a figure used to measure the risk-to-reward ratio of an investment.

Detailed explanation-4: -William Sharpe’s research yielded the Capital Asset Pricing Model (CAPM) in a paper submitted in 1962. The CAPM theory is based on the earlier work of fellow Laureate Harry Markowitz.

Detailed explanation-5: -Explanation: In both 1 and 2, the Capital allocation line of a market portfolio and the Capital allocation line of a risk-free asset is the Capital market line.