“Systematic risk is the only risk that remains in the market portfolio.” That’s what one of the answers said that I just did. But I thought the market portfolio was on the CML line, and the CML was based on total risk (systematic + unsystematic). What am I missing here?

The market portfolio contains all risky assets, therefore making it 100% diversified and removing all unsystematic risk.

but the horizontal axis on the CML graph (on which the market portfolio chills out on), is total risk

the show NY Wrote: ------------------------------------------------------- > but the horizontal axis on the CML graph (on which > the market portfolio chills out on), is total risk Yes. But total risk = unsystematic + systematic, unsystematic can simply = 0 at certain points (namely THE market portfolio)

The chart that the CML is graphed on has SD on the x-axis, and therefore measures total risk. The market portfolio is by definition fully diversified, so non-systematic risk is 0 by definition. However it can still be plotted on the same chart; it just happens that the SD = (systematic risk) + (0 non-systematic risk) But don’t just add SDs, it’s the variances that add up.

I see it this way, correct me if wrong: In the case of the market portfolio (which has zero unsystematic risk) Total Risk = Systematic + Unsystematic Risk. Or, since unsystematic risk is 0, Total Risk = Systematic Risk.

yep, that’s it. The entire CML has zero unsystematic risk, because neither the market portfolio nor the risk free asset has any. All other points on the chart have nonsystematic risk.