![]() SML shows a visual representation of the expected returns from assets based on systematic risk. ![]() The Security Market Line (SML), theoretically, represents a line on a chart which is a graphical representation of the CAPM model. Through these, CAPM provides an expected rate of return to users. Apart from beta, it also considers the expected returns, risk-free returns, and market risk premium. For that reason, most companies and investors prefer using this model. Unlike some other models, CAPM considers the beta coefficient, which is a measure of systematic risk. ![]() Companies, on the other hand, can use it to derive the cost of equity. Usually, CAPM is a tool that investors use when calculating the expected returns for their stock investments. This model describes the expected return for assets and the systematic risk involved. The Capital Asset Pricing Model (CAPM) is a tool that investors and companies use when calculating the cost of capital. ![]() What is the Capital Asset Pricing Model (CAPM)? ![]()
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