Answer: market price of risk.

## Explanation The capital allocation line (CAL) represents the risk-return trade-off available to investors by combining a risk-free asset with a risky portfolio. The slope of the CAL is calculated as: $$\text{Slope of CAL} = \frac{E(R_p) - R_f}{\sigma_p}$$ Where: - $E(R_p)$ = Expected return of the risky portfolio - $R_f$ = Risk-free rate - $\sigma_p$ = Standard deviation (risk) of the risky portfolio This slope represents the **market price of risk**, which is the additional return per unit of risk that investors can achieve by investing in the risky portfolio rather than the risk-free asset. Let's analyze why the other options are incorrect: **A. beta of the market** - Beta measures systematic risk relative to the market, not the slope of the CAL. **C. market risk premium** - The market risk premium is $E(R_m) - R_f$, which is the numerator of the slope formula, but not the complete slope itself. Therefore, the correct answer is **B. market price of risk**, which represents the reward-to-risk ratio available to investors.

Author: LeetQuiz .