Equilibrium model relating expected asset return to systematic market risk: E[R_i] = r_f + β_i,(E[R_m] - r_f), with β_i = dfracCov(R_i, R_m)Var(R_m). Derived from mean-variance preferences plus a tangency-portfolio market clearing. Empirically, the security market line is flatter than CAPM predicts (low-beta anomaly), motivating multi-factor extensions (Fama-French, Carhart). Used pragmatically as the cost-of-equity input to WACC despite being a poor unconditional return predictor.