Investment Management: CML vs SML, Minimum Portfolio Variance, CAPM Equation

Running head: INVESTMENT MANAGEMENT
Investment Management
Name of the Student:
Name of the University:
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INVESTMENT MANAGEMENT
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Table of Contents
Introduction:...............................................................................................................................2
Stating graphically the difference between CML (Capital Market Line) and SML (Security
Market Line):.............................................................................................................................2
Identifying and discussing the importance of minimum portfolio variance:.............................5
Evaluating the CAPM equation and indicating its significance in comparison to other
formulas used for calculating required rate of return:................................................................8
Conclusion:................................................................................................................................9
Reference and Bibliography:....................................................................................................11

INVESTMENT MANAGEMENT
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Introduction:
The aim of investors is to evaluate different investment formulas and scopes which
could detect the stocks that helps in generating the highest rate of return from investment
with low risk. Hence, different level of theories and formulas are relatively evaluated in the
assessment to identify the significance of different investment phase for an investor. The
difference between capital market line and security market line is evaluated to allow the
investors understand the significance of both the market lines. The significance of minimum
variance portfolio is also evaluated which would allow investors to understand the advantage
of having the lowest risk generating portfolio. Lastly, the significance and use of CAPM
formula is stated, which is relatively used in maximum of the possible to identify risk and
return of a particular investment. Therefore, the evaluation would eventually allow investors
to detect the significance of theories and formulas while making any kind of investment
decisions.

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Stating graphically the difference between CML (Capital Market Line) and SML
(Security Market Line):
Figure 1: CML (Capital Market Line) and SML (Security Market Line)
(Source: Kahn and Lemmon 2016)
Capital market line and security market line at different investment measures which
are used by investors to detect stocks which has the least risk and highest return from
investment. Both the market lines have different significance for the investors and is
considered important while making any kind of investment decisions. With the use of capital
market line investors are able to goes into the portfolio efficiency which relatively indicates
the overall profits and risk involved in investment. Moreover, the capital market line aims in
understanding different kind of portfolios for the investors who aims to maximize the profit
and minimize any kind of dress from investment. Similarly, investors utilize the security
market line, as a risk evaluator, where the stocks needs to be at the SML line to be effective
for investment (Fender et al. 2016). There is the significant difference between capital market
line and security market line which needs to be understood by investors before conducting