In the following table, indicate whether each statement refers to the Capital Market Line $($CML$)$ or to the Security Market Line $($SML$).$

Statement

Capital Market

Security Market

Line $($CML$)$

This line has an intercept of $r_{RF}$ and a slope of $\frac{\text{h}\text{a}\text{t}(r{)}_M-r_{RF}}{{}_M}.$

This line addresses the risk and return behavior of efficient portfolios, which exhibit the maximum

return for any degree of risk or the minimum risk for any expected return.

The theory behind this line states that a security$\text{'}$s risk should not be measured by its standard deviation but by its beta coefficient.

If an investor wants to hold an efficient portfolio that offers an expected return of $9\%,$ should the investor select portfolio A that exhibits a standard deviation of $5\%$ or portfolio $C$ that has a standard deviation of $4\%?($Assume that both the portfolios offer an expected return of $9\%.)$

The rational investor will be indifferent about the portfolio selection.

The investor should select portfolio C$.$

The investor should select portfolio A$.$

Which of the following is the correct formula for the CML$?$

hat$(r{)}_P=r_{RF}+[\frac{\text{h}\text{a}\text{t}(r{)}_M-r_{RF}}{{}_M}]{}_P$

$r_i=r_{RF}+(R{P}_M)b_i$