An ideal portfolio would combine the risk-free rate of return with the market portfolio of risky assets, and this is known as the Capital Market Line (CML). The capital market line (CML) is important because it shows how investors can achieve a desired level of risk and return by investing in different combinations of risk-free and risky assets.The slope of the capital market line (CML) reflects the trade-off between risk and return: The greater the slope, the higher the expected return for taking on additional risk. Investors can use this information to find portfolios that are consistent with their individual preferences for risk and return.The capital market line (CML) is an important tool for financial planning because it provides a framework for understanding how different investment choices can be combined to achieve specific goals. By understanding how different investments are related to one another, investors can make more informed decisions about where to allocate their money.
