The introduction of a risk-free asset changes the Markowitz efficient frontier into a straight line. This straight efficient frontier line is called the capital market line (CML). Investors at point Rf have 100 percent of their funds invested in the risk-free asset. Investors at point M have 100 percent of their funds invested in market portfolio M. Between Rf and M, investors hold both the risk-free asset and portfolio M. To the right of M, investors hold more than 100 percent of portfolio M. All investors have to do to get the risk and return combination that suits them is to simply vary the proportion of their investment in the risky portfolio M and the risk-free asset.
The term "characteristic line" refers to Beta, used to form the security market line (SML). Utility curves reflect individual preferences.
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