The Security Market Line

This video discusses the Security Market Line.

The Security Market Line is the line you obtain when you plot the beta and expected return of different securities. The Security Market Line is therefore the visual representation of the Capital Asset Pricing Model.

The Security Market Line is upward-sloping because securities with higher systematic risk (a higher beta) have a higher expected return. This is because investors demand a higher return for bearing a higher level of risk. The Security Market Line thus shows us the reward investors expect to receive for bearing different levels of systematic risk.—
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