Answer: Sharpe ratio

## Explanation The capital allocation line (CAL) represents the risk-return trade-off available by combining a risk-free asset with a risky portfolio. The slope of the CAL is given by: $$\text{Slope of CAL} = \frac{E(R_p) - R_f}{\sigma_p}$$ Where: - $E(R_p)$ = Expected return of the risky portfolio - $R_f$ = Risk-free rate - $\sigma_p$ = Standard deviation of the risky portfolio (total risk) This formula is exactly the definition of the **Sharpe ratio**, which measures excess return per unit of total risk. **Why the other options are incorrect:** **B. Treynor ratio** - Measures excess return per unit of systematic risk (beta), not total risk. Formula: $(E(R_p) - R_f)/\beta_p$ **C. Jensen's alpha** - Measures abnormal return relative to what would be expected based on the CAPM. Formula: $\alpha_p = R_p - [R_f + \beta_p(R_m - R_f)]$ Therefore, only the Sharpe ratio represents the slope of the capital allocation line.

Author: LeetQuiz .