THE SECURITY MARKET LINE (SML)

Firms	ß	R f	R m	SML
	0.00	1.97%	11.05%	1.97%
	0.10	1.97%	11.05%	2.88%
	0.20	1.97%	11.05%	3.79%
	0.30	1.97%	11.05%	4.69%
	0.40	1.97%	11.05%	5.60%
	0.50	1.97%	11.05%	6.51%
	0.60	1.97%	11.05%	7.42%
A	0.70	1.97%	11.05%	8.33%
M	0.80	1.97%	11.05%	9.23%
C	0.90	1.97%	11.05%	10.14%
Market	1.00	1.97%	11.05%	11.05%
D	1.10	1.97%	11.05%	11.96%
	1.20	1.97%	11.05%	12.87%
E	1.30	1.97%	11.05%	13.77%
	1.40	1.97%	11.05%	14.68%
F	1.50	1.97%	11.05%	15.59%
	1.60	1.97%	11.05%	16.50%
	1.70	1.97%	11.05%	17.41%

 

An example of Portofolio

Firms	Allocation of funds	Expected Return	Betas	Risk Premium
A	15.0%	8.33%	0.70	6.36%
M	20.0%	9.23%	0.80	7.26%
C	18.0%	10.14%	0.90	8.17%
D	22.0%	11.96%	1.10	9.99%
E	15.0%	13.77%	1.30	11.80%
F	10.0%	15.59%	1.50	13.62%
Portfolio	100.0%	11.18%	1.01	9.21%
Market	100.0%	11.05%	1.00	9.08%

Corporate Finance Course, Bernard Jaquier, Professor in Economics & Finance, Ecole Hôtelière de Lausanne, 2010