Security market line
Certified Financial Planner glossary · Certified Financial Planner
Definition
The graphical representation of the capital asset pricing model, plotting expected return against beta.
Security market line in plain English
You plot every asset's expected return against its beta and draw the CAPM relationship as a straight line through the risk-free rate. That graph is the security market line: the graphical representation of the capital asset pricing model, plotting expected return against beta. Assets above the line look underpriced relative to CAPM; assets below look overpriced. Do not confuse the SML (return versus beta) with the capital market line (return versus total portfolio risk for efficient combinations).
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