Capital Allocation Line Calculator

✖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).ⓘ Expected Return on Treasury Bill [ER_tb]			+10% -10%
✖Weight of Treasury Bill refers to the proportion or allocation of the portfolio's total value that is invested in Treasury bills (T-bills).ⓘ Weight of Treasury Bill [W_tb]			+10% -10%
✖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.ⓘ Expected Return of Stock [ER_S]			+10% -10%
✖Weight of Stock refers to the proportion or allocation of the portfolio's total value that is invested in stocks.ⓘ Weight of Stock [W_S]			+10% -10%

✖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.ⓘ Capital Allocation Line [ER_P]

⎘ Copy

👎

Formula

✖

Capital Allocation Line

Formula

`"ER"_{"P"} = (("ER"_{"tb"}*"W"_{"tb"})+("ER"_{"S"}*"W"_{"S"}))*100`

Example

`"8.4"=(("0.03"*"0.30")+("0.10"*"0.75"))*100`

Calculator

LaTeX

Reset

👍

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
ER_P = ((ER_tb*W_tb)+(ER_S*W_S))*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

ER_P = ((ER_tb*W_tb)+(ER_S*W_S))*100 --> ((0.03*0.3)+(0.1*0.75))*100

Evaluating ... ...

ER_P = 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)

You are here -

Home » Financial » Equity » Capital Allocation Line

Credits

Created by Vishnu K

BMS College of Engineering (BMSCE), Bangalore

Vishnu K has created this Calculator and 200+ more calculators!

Verified by Kashish Arora

Satyawati College (DU), New Delhi

Kashish Arora has verified this Calculator and 50+ more calculators!

< 19 Equity Calculators

Float-Adjusted Market Capitalisation Index

Go Float Adjusted Market Capitalisation = (Fraction of Shares Outstanding*Number of Shares Outstanding of Security*Price of the Security)/(sum(x,1,Number of Securities in the Index,(Fraction of Shares Outstanding*Number of Shares Outstanding of Security*Price of the Security)))

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

Go Zeta Value = 1.2*Working Capital+1.4*Retained Earnings+3.3*Earnings Before Interest and Taxes+0.6*Market Value of Equity+1.0*Total Sales

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

Go Justified Forward Price to Earnings Ratio = (Dividend/Earnings Per Share)/(Cost of Equity-Growth Rate)

Margin Call Price

Go Margin Call Price = Initial Purchase Price*((1-Initial Margin Requirement)/(1-Maintenance Margin Requirement))

Dividend Coverage Ratio

Go Dividend Coverage Ratio = (Net Income-Preferred Dividend)/Common Dividend

Fisher Price Index

Go Fisher Price Index = sqrt(Laspeyres Price Index*Paasche Price Index)

Momentum Indicator

Go Momentum Indicator = (Closing Price of Particular Stock/Closing Price of Stock N Days Ago)*100

Marshall-Edgeworth Price Index

Go Marshall Edgeworth Price Index = (Laspeyres Price Index+Paasche Price Index)/2

Dividend Growth Rate

Go Dividend Growth Rate = (Previous Year Dividend/Current Year Dividend)-1

Price to Cash Flow Ratio

Go Price to Cash Flow Ratio = Current Share Price/Operating Cash Flow

Margin Account Value

Go Margin Account Value = (Margin Loan)/(1-Maintenance Margin)

Sustainable Growth Rate

Go Sustainable Growth Rate = Retention Ratio*Return on Equity

Ev to Ebitda Ratio

Go Enterprise Value to Ebitda Ratio = Enterprise Value/EBITDA

Maximum Leverage Ratio

Go Maximum Leverage Ratio = 1/Initial Margin Requirement

Equal Weighting

Go Equal Weighting = 1/Number of Securities in the Index

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
ER_P = ((ER_tb*W_tb)+(ER_S*W_S))*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 ER_P 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 (ER_tb), Weight of Treasury Bill (W_tb), Expected Return of Stock (ER_S) & Weight of Stock (W_S) 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 ER_P = ((ER_tb*W_tb)+(ER_S*W_S))*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 (ER_tb), Weight of Treasury Bill (W_tb), Expected Return of Stock (ER_S) & Weight of Stock (W_S). 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.

Home

FREE PDFs

🔍 Search