Security Market Line (SML)

Fundamental Analysis Tools Financial Terms Dictionary

Contents

The Securities Market Line (SML) is a line drawn on a chart that serves as a graphical representation of the Capital Asset Pricing Model (CAPM).

SML can help determine if an investment product will offer a favorable expected return relative to its level of risk.
SML construction formula: required return = risk-free rate of return + beta (market rate of return - risk-free rate of return).