I need help please, Can anyone explain to me the difference between the CML and the CAL? From what I understand the CML is a passive portfolio that holds the risk free assets and is tangent to the efficient portfolio frontier? And the CAL is the same but is also actively managed so it can be a bit above the CML with the same SD of risk? Also while were at it, is the Minimum Variance Frontier the same as the Efficient Portfolio Frontier? Also where do you put Currency Translation adjustments? In OCI on the B/S and in Profit/Loss on the IS? Thanks a ton guys, Best of luck to everyone tomorrow, don’t get too stressed and enjoy yourselves tomorrow night!
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bump
CML: tangent from rf to the Market Portfolio on the efficient frontier. CAL: tangent from rf to the point where the investor wants to be at… so based on risk preference of the investor. could be higher than, lower than to the CML. SD is dependent on the risk preference here. Both are on the efficient frontier itself.
You are a god CP
the cal is a line with an intercept of the RF rate and a slope that is equal to the sharpe ratio (i.e. Rp - Rf/standard dev. of portfolio). the point at which it is tangent to the efficient frontier is the optimum portfolio, as it has the biggest sharpe ratio (biggest return per unit of risk). If the optimal CAL ratio is the market portfolio, then the CAL is the CML. as CP points out, there can be many different CALs - because they are developed unique to each investor. there is only one CML, because it assumes the market portfolio is the tangency portfolio (there is only 1 market portfolio)
Further, if I am not mistaken, CML is a subset of CAL. If all investors held identical expectations you get CML. Slope based on sharpe ratio. I answer these for my own practice, not to supercede cpk 
Thanks a lot guys
on your translation question - its OCI on the balance sheet under the current rate method (translation) under remeasurement (temporal method) monetary assets and liabilities get remeasured through the I/S…
There is only one CML it is a special case of a CAL
So I know the slope of the CML is Sharpe, the slope of the SML is B(RP), what is the slope of the CAL?
CAL is the sharpe. Its slope is as follows: Rp - Rf/Standard dev of portfolio the CML assumes the market portfolio is the tangency portfolio. So its the Sharpe, where “Rp” is the market portfolio. More simply, its: Rm - Rf/Standard dev of market
Yes - the diff between CAL and CML is that with the assumption regarding same expectations, the market portfolio is the tangency point. Without, personal expectations determine the tangency point.