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Exam 2 review · Lesson 27 of 45

CAPM & the Security Market Line

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Exam 2 review · Lesson 27 of 45 · 14 min

CAPM & the Security Market Line

Turn beta into a required return with the SML, shift the line for inflation and risk aversion, and decide whether a stock is worth buying by comparing its expected and required returns.

Inside this lesson

  1. Why this matters
  2. The core idea
  3. The formula
  4. Worked example 1: building r_RF first
  5. Worked example 2: exam style, buy or pass?
  6. Your turn
  7. Calculator steps
  8. Common mistakes
  9. Quick check
  10. Key takeaways

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