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Q » Explain the concept of the security market line (SML).

Steven

06 Dec, 2025

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A » The Security Market Line (SML) represents the expected return of an investment as a function of its risk, measured by beta. It is a graphical depiction of the Capital Asset Pricing Model (CAPM), illustrating the relationship between systematic risk and expected return for assets. The slope of the SML reflects the market risk premium, while the intercept represents the risk-free rate. Assets above the SML are undervalued, and those below are overvalued.

Michael

06 Dec, 2025

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A »The Security Market Line (SML) is a graphical representation of the Capital Asset Pricing Model (CAPM), illustrating the relationship between systematic risk (beta) and expected return for individual securities. It shows that expected return is a function of beta, with higher beta investments demanding higher returns to compensate for increased risk.

David

06 Dec, 2025

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