Security Market Line
The Security Market Line (SML) is a graphical representation from the Capital Asset Pricing Model (CAPM) that shows the relationship between an asset's expected return and its beta (systematic risk). It intercepts the risk-free rate on the y-axis and has a slope equal to the market risk premium.
Example: An analyst plots a stock with beta 1.2 and an expected CAPM return of 8%. If the SML value at beta 1.2 is 6%, the stock lies above the line, indicating a higher return for its risk than CAPM would predict.
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