The security market line shows how expected rate of return depends on beta.

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The security market line (SML) is a graphical representation of the relationship between risk and return in the capital asset pricing model (CAPM). It plots the expected rate of return of a stock or portfolio against its beta, which measures the systematic risk or volatility of the stock relative to the market. The SML slopes upwards and to the right, indicating that more risk is associated with higher expected returns, and the formula for the SML is Rf + Beta x (Rm - Rf), where Rf is the risk-free rate of return, Rm is the expected market return, and Beta is the stock's or portfolio's beta.

The Security Market Line Shows How Expected Rate of Return