Security Market Line And Beta Basics 
11/8/2014
Security Market Line And Beta Basics - Complete Guide To Corporate Finance | Investopedia
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Set yourself apart: CIPM®
Claim your US$100 early bird discount before 15 December 2014.
Complete Guide To Corporate Finance
Chapter One
Chapter Two
Chapter Three
Chapter Four
Chapter Five
Decisions
4.5.1 An Introduction To Risk And Return
4.3 Project Analysis And
4.5.2 Expected Return, Variance And Standard Deviation
Valuation
AAA |
Of A Portfolio
4.4 Capital Market History
4.5.3 Portfolios
4.5 Return, Risk And The
4.5.4 Expected And Unexpected Returns
Security Market Line
4.5.5 Systematic And Unsystematic Risk
Return, Risk And The Security Market Line Security Market Line And Beta Basics
The security market line ("SML" or "characteristic line") graphs the systematic
(or market) risk versus the return of the whole market at a certain time and shows all risky marketable securities. The SML essentially graphs the results from the capital asset pricing model (CAPM) formula. The x-axis represents the risk (beta), and the y-axis represents the expected return. The market risk premium is determined from the slope of the SML.
The security market line is a useful tool for determining whether an asset being considered for a portfolio offers a reasonable expected return for risk.
Individual securities are plotted on the SML graph. If the security's risk versus expected return is plotted above the SML, it is undervalued because the investor can expect a greater return for the inherent risk. A security plotted below the
SML is overvalued because the investor would be accepting less return for the amount of risk assumed. assumed.Expected Expected values for the SML are calculated with the
Security Market Line And Beta Basics - Complete Guide To Corporate Finance | Investopedia
Free Newsletters | Free Annual Reports | Register | Sign in
DICTIONARY
INVESTING
Continuing Education
MARKETS
Exam Prep Quizzer
PERSONAL FINANCE
ACTIVE TRADING
FOREX
EXAM PREP
Symbol
TUTORIALS
SearchSearch
Search Investopedia
VIDEO
SIMULATOR
FAQs
Set yourself apart: CIPM®
Claim your US$100 early bird discount before 15 December 2014.
Complete Guide To Corporate Finance
Chapter One
Chapter Two
Chapter Three
Chapter Four
Chapter Five
Decisions
4.5.1 An Introduction To Risk And Return
4.3 Project Analysis And
4.5.2 Expected Return, Variance And Standard Deviation
Valuation
AAA |
Of A Portfolio
4.4 Capital Market History
4.5.3 Portfolios
4.5 Return, Risk And The
4.5.4 Expected And Unexpected Returns
Security Market Line
4.5.5 Systematic And Unsystematic Risk
Return, Risk And The Security Market Line Security Market Line And Beta Basics
The security market line ("SML" or "characteristic line") graphs the systematic
(or market) risk versus the return of the whole market at a certain time and shows all risky marketable securities. The SML essentially graphs the results from the capital asset pricing model (CAPM) formula. The x-axis represents the risk (beta), and the y-axis represents the expected return. The market risk premium is determined from the slope of the SML.
The security market line is a useful tool for determining whether an asset being considered for a portfolio offers a reasonable expected return for risk.
Individual securities are plotted on the SML graph. If the security's risk versus expected return is plotted above the SML, it is undervalued because the investor can expect a greater return for the inherent risk. A security plotted below the
SML is overvalued because the investor would be accepting less return for the amount of risk assumed. assumed.Expected Expected values for the SML are calculated with the