Application of SML By the application of CAPM equation the SML can be plotted as follows: If the is 0, = 4% + [0 (12% - 4%)] = 4% beta R If the is 1, = 4% + [1 (12% - 4%)] = 12% beta R If the is 1.25, = 4% + [1.25 (12% - 4%)] = 14% beta R If the is 1.50, = 4% + [1.50 (12% - 4%)] = 16% beta R If the is 2.00, = 4% + [2 (12% - 4%)] = 20% beta R
Application of SML By the application of CAPM equation the SML can be plotted as follows: If the beta is 0, R = 4% + [0 (12% - 4%)] = 4% If the beta is 1, R = 4% + [1 (12% - 4%)] = 12% If the beta is 1.25, R = 4% + [1.25 (12% - 4%)] = 14% If the beta is 1.50, R = 4% + [1.50 (12% - 4%)] = 16% If the beta is 2.00, R = 4% + [2 (12% - 4%)] = 20%
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