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Answer: Slope of the capital market line
In mean-variance analysis, the market price of risk is represented by the slope of the capital market line (CML). The CML connects the risk-free rate to the tangency portfolio (Portfolio P) on the efficient frontier. The slope of this line represents the additional return per unit of risk (Sharpe ratio), which is the market price of risk. This slope is calculated as (E(Rp) - Rf) / σp, where E(Rp) is the expected return of the tangency portfolio, Rf is the risk-free rate, and σp is the standard deviation of the tangency portfolio.
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Portfolio P in the mean variance analysis represents the tangency point between the capital market line and the portfolio possibilities curve. In this analysis, the market price of risk would be the:
A
Slope of the capital market line
B
Intercept of the capital market line
C
Slope of the portfolio possibilities curve
D
Intercept of the portfolio possibilities curve
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