TY - JOUR
AU - Spence, James G.
AB - CML TO SML: A GRAPHICAL APPROACH Jams G. Spew* Teaching the Capital Asset Pricing Model (CAPM) in its textbook form is never an easy task. Even when the Capital Market Line (CML) is understood, a major part of the task still remains. The student must be convinced that the direct, linear relationship between an individual risky asset’s beta coefficient and its required expected return, as reflected by the Security Market Line (SML), follows logically from the CML. The purpose of this paper is to develop a graphical ap- proach to help bridge the gap between the CML and the SML. It is assumed that the student already understands the rationale of the CML, as well as the mathematics of calculating expected re- turns and standard deviations of returns for two-asset portfolios. To accomplish the stated purpose, seven panels are positioned as shown in Figure 1. Each is explained in numerical order, con- cluding with the SML relationship described in panel 7. The il- lustration is only a graphic representation of the relations which lead from a risky asset’s beta coefficient to its required expected return, when the CML is known. It does not represent a deriva- tion of the 
TI - CML TO SML: A GRAPHICAL APPROACH
JF - The Financial Review
DO - 10.1111/j.1540-6288.1984.tb00659.x
DA - 1984-11-01
UR - https://www.deepdyve.com/lp/wiley/cml-to-sml-a-graphical-approach-BU29UA6j1l
SP - 388
EP - 393
VL - 19
IS - 4
DP - DeepDyve
ER -