Security Market Line (SML)
The Security Market Line (SML) is a graphical representation of the CAPM that shows the expected return of an asset as a function of its beta (systematic risk), with the intercept equal to the risk-free rate and the slope equal to the market risk premium.
Example: With a beta of 1.1, a risk-free rate of 2% and a market return expectation of 8%, CAPM implies an expected return of 8.6%; an asset expected to return 9% would lie above the SML for these inputs.
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