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Capital Allocation Line Formula

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Expected Return on Portfolio refers to the anticipated rate of return that an investor expects to achieve from a portfolio of investments over a specific period. Check FAQs

ER P = ((ER tb \cdot W tb) + (ER S \cdot W S)) \cdot 100

ER_P - Expected Return on Portfolio?ER_tb - Expected Return on Treasury Bill?W_tb - Weight of Treasury Bill?ER_S - Expected Return of Stock?W_S - Weight of Stock?

Capital Allocation Line Example

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Here is how the Capital Allocation Line equation looks like with Values.

Here is how the Capital Allocation Line equation looks like with Units.

Here is how the Capital Allocation Line equation looks like.

8.4 = ((0.03 \cdot 0.3) + (0.1 \cdot 0.75)) \cdot 100

8.4 = ((0.03 \cdot 0.3) + (0.1 \cdot 0.75)) \cdot 100

8.4 = ((0.03 \cdot 0.3) + (0.1 \cdot 0.75)) \cdot 100

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Capital Allocation Line Solution

Follow our step by step solution on how to calculate Capital Allocation Line?

FIRST Step Consider the formula

ER P = ((ER tb \cdot W tb) + (ER S \cdot W S)) \cdot 100

Next Step Substitute values of Variables

∴

ER P = ((0.03 \cdot 0.3) + (0.1 \cdot 0.75)) \cdot 100

Next Step Prepare to Evaluate

∴

ER P = ((0.03 \cdot 0.3) + (0.1 \cdot 0.75)) \cdot 100

LAST Step Evaluate

∴

ER P = 8.4

Capital Allocation Line Formula Elements

Variables

Expected Return on Portfolio

Expected Return on Portfolio refers to the anticipated rate of return that an investor expects to achieve from a portfolio of investments over a specific period.

Symbol: ER_P

Measurement: NAUnit: Unitless

Note: Value should be greater than 0.

Formulas to find Expected Return on Portfolio

Expected Return on Treasury Bill

Expected Return on Treasury Bill refers to the anticipated rate of return that an investor expects to earn from investing in a Treasury bill (T-bill).

Symbol: ER_tb

Measurement: NAUnit: Unitless

Note: Value should be greater than 0.

Formulas to find Expected Return on Treasury Bill

Weight of Treasury Bill

Weight of Treasury Bill refers to the proportion or allocation of the portfolio's total value that is invested in Treasury bills (T-bills).

Symbol: W_tb

Measurement: NAUnit: Unitless

Note: Value should be greater than 0.

Formulas to find Weight of Treasury Bill

Expected Return of Stock

Expected Return of Stock refers to the anticipated rate of return that an investor expects to earn from holding a particular stock over a specific period.

Symbol: ER_S

Measurement: NAUnit: Unitless

Note: Value should be greater than 0.

Formulas to find Expected Return of Stock

Weight of Stock

Weight of Stock refers to the proportion or allocation of the portfolio's total value that is invested in stocks.

Symbol: W_S

Measurement: NAUnit: Unitless

Note: Value should be greater than 0.

Formulas to find Weight of Stock

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How to Evaluate Capital Allocation Line?

Capital Allocation Line evaluator uses Expected Return on Portfolio = ((Expected Return on Treasury Bill*Weight of Treasury Bill)+(Expected Return of Stock*Weight of Stock))*100 to evaluate the Expected Return on Portfolio, The Capital Allocation Line (CAL) is a graphical representation used in portfolio theory to illustrate the trade-off between risk and return for different portfolios. Expected Return on Portfolio is denoted by ER_P symbol.

How to evaluate Capital Allocation Line using this online evaluator? To use this online evaluator for Capital Allocation Line, enter Expected Return on Treasury Bill (ER_tb), Weight of Treasury Bill (W_tb), Expected Return of Stock (ER_S) & Weight of Stock (W_S) and hit the calculate button.

FAQs on Capital Allocation Line

What is the formula to find Capital Allocation Line?

The formula of Capital Allocation Line is expressed as Expected Return on Portfolio = ((Expected Return on Treasury Bill*Weight of Treasury Bill)+(Expected Return of Stock*Weight of Stock))*100. Here is an example- 8.4 = ((0.03*0.3)+(0.1*0.75))*100.

How to calculate Capital Allocation Line?

With Expected Return on Treasury Bill (ER_tb), Weight of Treasury Bill (W_tb), Expected Return of Stock (ER_S) & Weight of Stock (W_S) we can find Capital Allocation Line using the formula - Expected Return on Portfolio = ((Expected Return on Treasury Bill*Weight of Treasury Bill)+(Expected Return of Stock*Weight of Stock))*100.

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Capital Allocation Line Formula

Capital Allocation Line Example

Capital Allocation Line Solution

Capital Allocation Line Formula Elements

Other formulas in Equity category

How to Evaluate Capital Allocation Line?

FAQs on Capital Allocation Line

Variable Name