Capital Allocation Line - CAL

What is the 'Capital Allocation Line - CAL'

The capital allocation line (CAL) is a line created in a graph of all possible combinations of risky and risk-free assets. Also known as the "reward-to-variability ratio".

BREAKING DOWN 'Capital Allocation Line - CAL'

The graph displays to investors the return they can make by taking on a certain level of risk.

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RELATED FAQS
  1. How is it possible for a rate to be entirely risk-free?

    Find out whether there really is such a thing as a risk-free rate of return, and learn why taking the idea of risk-free rates ... Read Answer >>
  2. What is the correlation between equity risk premium and risk?

    Learn about the relationship between the risk-free rate of return and the equity risk premium, and understand how the risk-free ... Read Answer >>
  3. How is the risk-free rate of interest used to calculate other types of interest rates ...

    Learn how the risk-free rate is used to compare the yields on bonds, and understand how T-bills are used as a proxy for the ... Read Answer >>
  4. How is the risk-free rate determined when calculating market risk premium?

    Learn how the risk-free rate is used in the calculation of the market risk premium, and understand why T-bills provide the ... Read Answer >>
  5. How accurate is the equity risk premium in evaluating a stock?

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  6. What nations other than the U.S. have risk-free interest rates?

    Find out which countries have risk-free rates of returns. This is typically the yield on a 3-month note, and it can be negative ... Read Answer >>
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