In Modern Portfolio Theory, the Security Market Line (SML) is the graphical representation of the Capital Asset Pricing Model.It displays the expected rate of return of an individual security as a function of systematic, non-diversifiable risk (its beta). Security Market Line is the representation of capital asset pricing model (CAPM). Security Market Line, Treynor ratio and Alpha. The security market line (SML) is a visual representation of the capital asset pricing model or CAPM. The Security Market Line is a graphical presentation of the Capital asset pricing model formula: Re = Rf + beta x [Rm-Rf] Where: Re = return on security.

Beta = relative market risk.

The security market line (SML) is a graphical representation of the capital asset pricing model (CAPM), a basic estimate of the relationship between risk and return in a stock price. Under Capital Asset Pricing model, risk of an individual risky security refers to the volatility of the security’s return vis – a – vis the return of the market portfolio.The risk in the individual risky securities is the systematic risk.

Expected returns are on the vertical axis for both graphs. Capital Market Line

− = −. Definition: The security market line (SML) presents the capital asset pricing model (CAPM) on a graph, seeking to demonstrate the levels of market risk based on the hypothesis of a perfect market.

From Wikipedia, the free encyclopedia. What Does SML Mean?

It shows the relationship between the expected return of a security and its risk measured by its beta coefficient.

Rf = theoretical risk-free rate of return.

See also.

The Y-Intercept (beta=0) of the SML is equal to the risk-free interest rate.

What is the definition of security market line?

Line representing the relationship between expected return and market risk or beta. The security market line is a line that graphs the systematic, or market, risk versus return of the whole market at a certain time and shows all risky marketable securities. What is Security Market Line?

Security market line. In fact, the slope of the SML is the Treynor ratio of the market portfolio since =. All of the portfolios on the SML have the same Treynor ratio as does the market portfolio, i.e. Security market line. See the figure which shows the CML on the left graph and the SML on the right graph for the same set of three risk-free assets and risk-free asset that we have been using.

One question that comes to mind is the difference between the security market line SML and the capital market line CML. Rm = average expected rate of return on the market.

The slope of this line is the risk premium for beta.