The capital market line (CML) is the capital allocation line with the market portfolio as the tangency portfolio. The equation of the CML is:
E(RP) = RF + [(E(RM) – RF)/sM] sp
where: E(RM) = the expected return on the market portfolio, M sM = the standard deviation of the market portfolio, M RF = the risk-free return
The intercept is the risk-free rate, RF. The slope is equal to [(E(RT) – RF)/sT], where [E(RT) – RF] is the expected risk premium on the tangency portfolio.
