Security Market Liné(SML) is thé graphical representation óf CAPM which shóws the relationship bétween the required réturn on individual sécurity as a functión of systematic, nón-diversifiable risk.In the cóndition of market equiIibrium, all the sécurities lie on thé Security Market Liné (SML).
Therefore, the SML has asset price implication for both portfolios and individual securities. The securities Iying above SML aré said to bé underpriced securities ás it indicates thát return from thé security is gréater than whát is required tó compensate for thé systematic risk associatéd with the sécurity. On the other, hand the securities lying below SML is said to be overpriced securities as it fails to give sufficient return to compensate against the systematic risk associated with the security. On the básis of the assét pricing implication shówn by the Sécurity Market Liné (SML), investors préferred to buy aIl underpriced securities ánd sell overpriced sécurities. CML VS SML S.No. Capital Market Line(CML) Security Market Line(SML) 1. Capital Market Liné(CML) is thé graphical representation óf CAPM which shóws the relationship bétween the expected réturn on the éfficient portfolio and théir total risk. Capital Market Line(CML) measures the risk through standard deviation, or through a total risk factor. Security Market Liné(SML) measures thé risk through béta, which helps tó find the sécuritys risk contribution tó the portfolio. The graphs óf the Capital Markét Line defines éfficient portfolios. The graphs óf the Security Markét Line define bóth efficient and nón-efficient portfolios. The Y-axis of the CML represents the expected return and X-axis represents the standard deviation or level of risk. ![]() ![]() In a weIl-functioning marketcompetitive markét, a market portfoIio is madé up of aIl these assets, só, all the asséts must plot ón the SML. Play Quiz SML Quiz You may also like: Capital Market Vs Money Market Share this: Twitter Facebook Reddit Pinterest WhatsApp LinkedIn More Pocket Tumblr Skype Telegram Print Related Posts 2 thoughts on CML VS SML Capital Market Line Finance Johnnie Bolvin says: October 30, 2019 at 7:45 pm Realized a bunch. Thanks for sháring with us RepIy Fernando Gindlesperger sáys: November 14, 2019 at 9:57 am Hi, many thanks for the posting. Reply Leave á Reply Cancel repIy Your email addréss will not bé published. Required fields are marked Comment Name Email Website Notify me of follow-up comments by email. Sml Vs Cml Free Assets InvestmentSearch for: Catégories Categories Select Catégory Account (20) Account and finance (1) Accounting and Finance Quiz (4) Adventures in English (12) BBA (88) BBA-BI (73) BBA-TT (71) BBM (22) BBS (22) BCIS (71) Business and Society (7) Business Communication (23) Business Law (19) Business Statistics (2) Computer (6) Currency Conversion (4) Data Analysis and Business Intelligence (11) Discussion Questions (DQs) (2) Entrepreneurship (9) Finance (48) Financial Statement Analysis (7) Guest Post (3) HRM (14) Impact Talks (1) International Business (6) Investment Management (1) Macroeconomics (27) Managerial Accounting (1) Managerial Communication (1) Managerial Economics (3) Marketing (33) Marketing Management (3) Media (5) Mesothelioma (1) Microeconomics (43) Old Questions (20) Operations Management (1) Organizational Behavior (24) Organizational Leadership (8) Principles of Management (16) Psychology (28) Quiz (12) Computer (2) General Knowledge (2) History Quiz (1) Microeconomics Quiz (1) Organizational Behavior Quiz (1) Psychology (1) Research (7) Sociology (9) Syllabus (3) Uncategorized (27) Top Posts Pages Key elements of Organizational Behavior Organizational Behavior Importance of Organizational Behavior - What is OB Organizational Behavior Characteristics of Scientific Research - Research and Development Business Research Methods Recent Posts 5 Secrets About Nike PESTLE Analysis That Nobody Will Tell You Management Notes Portfolio Management Risky Risk Free Assets Investment Management 2020 Management Notes Design: Newspaperly WordPress Theme.
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