Capital Allocation Line Solution

STEP 0: Pre-Calculation Summary
Formula Used
Expected Return on Portfolio = ((Expected Return on Treasury Bill*Weight of Treasury Bill)+(Expected Return of Stock*Weight of Stock))*100
ERP = ((ERtb*Wtb)+(ERS*WS))*100
This formula uses 5 Variables
Variables Used
Expected Return on Portfolio - Expected Return on Portfolio refers to the anticipated rate of return that an investor expects to achieve from a portfolio of investments over a specific period.
Expected Return on Treasury Bill - Expected Return on Treasury Bill refers to the anticipated rate of return that an investor expects to earn from investing in a Treasury bill (T-bill).
Weight of Treasury Bill - Weight of Treasury Bill refers to the proportion or allocation of the portfolio's total value that is invested in Treasury bills (T-bills).
Expected Return of Stock - Expected Return of Stock refers to the anticipated rate of return that an investor expects to earn from holding a particular stock over a specific period.
Weight of Stock - Weight of Stock refers to the proportion or allocation of the portfolio's total value that is invested in stocks.
STEP 1: Convert Input(s) to Base Unit
Expected Return on Treasury Bill: 0.03 --> No Conversion Required
Weight of Treasury Bill: 0.3 --> No Conversion Required
Expected Return of Stock: 0.1 --> No Conversion Required
Weight of Stock: 0.75 --> No Conversion Required
STEP 2: Evaluate Formula
Substituting Input Values in Formula
ERP = ((ERtb*Wtb)+(ERS*WS))*100 --> ((0.03*0.3)+(0.1*0.75))*100
Evaluating ... ...
ERP = 8.4
STEP 3: Convert Result to Output's Unit
8.4 --> No Conversion Required
FINAL ANSWER
8.4 <-- Expected Return on Portfolio
(Calculation completed in 00.004 seconds)
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Market Capitalization Index
Go Market Capitalization = (Number of Shares Outstanding of Security*Price of the Security)/(sum(x,0,Number of Securities in the Index,(Number of Shares Outstanding of Security*Price of the Security)))
Laspeyres Price Index
Go Laspeyres Price Index = ((sum(x,1,2,(Price in Final Period*Quantity in Base Period)))/(sum(x,1,2,(Price in Base Period*Quantity in Base Period))))*100
Paasche Price Index
Go Paasche Price Index = ((sum(x,1,3,(Price in Final Period*Quantity in Final Period)))/(sum(x,1,3,(Price in Base Period*Quantity in Final Period))))*100
Altman's Z Score Model
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Capital Allocation Line
Go Expected Return on Portfolio = ((Expected Return on Treasury Bill*Weight of Treasury Bill)+(Expected Return of Stock*Weight of Stock))*100
Justified Forward Price to Earnings Ratio
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Maximum Leverage Ratio
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Equal Weighting
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Capital Allocation Line Formula

Expected Return on Portfolio = ((Expected Return on Treasury Bill*Weight of Treasury Bill)+(Expected Return of Stock*Weight of Stock))*100
ERP = ((ERtb*Wtb)+(ERS*WS))*100

What is Capital Allocation Line?

The Capital Allocation Line (CAL) is a fundamental concept in modern portfolio theory (MPT) that illustrates the relationship between risk and return for a portfolio of assets. The CAL represents the various combinations of risk and return that an investor can achieve by holding different proportions of risky assets (such as stocks) and risk-free assets (such as Treasury bills) in their portfolio.

At the heart of the Capital Allocation Line is the trade-off between risk and return. Generally, as an investor increases their exposure to risky assets, such as stocks, they expect to earn higher returns over time. However, this comes with the trade-off of accepting greater volatility or risk in their portfolio. Conversely, by allocating more to risk-free assets like Treasury bills, investors can reduce the overall volatility of their portfolio but typically at the cost of lower expected returns.

How to Calculate Capital Allocation Line?

Capital Allocation Line calculator uses Expected Return on Portfolio = ((Expected Return on Treasury Bill*Weight of Treasury Bill)+(Expected Return of Stock*Weight of Stock))*100 to calculate the Expected Return on Portfolio, The Capital Allocation Line (CAL) is a graphical representation used in portfolio theory to illustrate the trade-off between risk and return for different portfolios. Expected Return on Portfolio is denoted by ERP symbol.

How to calculate Capital Allocation Line using this online calculator? To use this online calculator for Capital Allocation Line, enter Expected Return on Treasury Bill (ERtb), Weight of Treasury Bill (Wtb), Expected Return of Stock (ERS) & Weight of Stock (WS) and hit the calculate button. Here is how the Capital Allocation Line calculation can be explained with given input values -> 8.4 = ((0.03*0.3)+(0.1*0.75))*100.

FAQ

What is Capital Allocation Line?
The Capital Allocation Line (CAL) is a graphical representation used in portfolio theory to illustrate the trade-off between risk and return for different portfolios and is represented as ERP = ((ERtb*Wtb)+(ERS*WS))*100 or Expected Return on Portfolio = ((Expected Return on Treasury Bill*Weight of Treasury Bill)+(Expected Return of Stock*Weight of Stock))*100. Expected Return on Treasury Bill refers to the anticipated rate of return that an investor expects to earn from investing in a Treasury bill (T-bill), Weight of Treasury Bill refers to the proportion or allocation of the portfolio's total value that is invested in Treasury bills (T-bills), Expected Return of Stock refers to the anticipated rate of return that an investor expects to earn from holding a particular stock over a specific period & Weight of Stock refers to the proportion or allocation of the portfolio's total value that is invested in stocks.
How to calculate Capital Allocation Line?
The Capital Allocation Line (CAL) is a graphical representation used in portfolio theory to illustrate the trade-off between risk and return for different portfolios is calculated using Expected Return on Portfolio = ((Expected Return on Treasury Bill*Weight of Treasury Bill)+(Expected Return of Stock*Weight of Stock))*100. To calculate Capital Allocation Line, you need Expected Return on Treasury Bill (ERtb), Weight of Treasury Bill (Wtb), Expected Return of Stock (ERS) & Weight of Stock (WS). With our tool, you need to enter the respective value for Expected Return on Treasury Bill, Weight of Treasury Bill, Expected Return of Stock & Weight of Stock and hit the calculate button. You can also select the units (if any) for Input(s) and the Output as well.
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