The graphical representation of CAPM (Capital Asset Pricing Model) is called:
A) Capital Market Line
B) Characteristic Line
C) Security Market Line
D) None of the above

Question

Quizplus · Accepted Answer

The graphical representation of CAPM is called the Security Market Line (SML). The SML shows the expected return for a given level of risk (systematic risk or beta) and is used to price individual securities or portfolios. The Capital Market Line (CML) is a different graphical representation that shows the possible risk-return combinations for different portfolios consisting of a risky asset and a risk-free asset. The Characteristic Line is not a graphical representation of CAPM but is a regression line that shows the relationship between the returns of an individual security and the returns of the overall market.

The Graphical Representation of CAPM (Capital Asset Pricing Model) Is