Investment Management: SML vs CML, Minimum Portfolio Variance, CAPM Equation

Running head: INVESTMENT MANAGEMENT
Investment Management
Name of the Student:
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Table of Contents
Introduction:...............................................................................................................................2
Explaining and Graphically depicting how SML (Security Market Line) and CML (Capital
Market Line) are different:.........................................................................................................2
Identifying and discussing the importance of minimum portfolio variance:.............................5
Stating the significance of CAPM equation in calculating required rate of return in
comparison to other equations:..................................................................................................8
Conclusion:..............................................................................................................................10
References:...............................................................................................................................11

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Introduction:
The overall assessment aims in identifying the significance of SML and CML line,
which could allow investor to maximise their profitability. In addition, the discussion on the
significance of minimum portfolio variance is also conducted, which is used by investor to
maximise their profits and minimise risk from investment. In addition, the assessment aims in
detecting the significance to CAPM formula in deriving the required rate of return in
comparison to other formulas used by investors. This detection of the formula would
eventually help the investors to improve their return generation capacity while reducing any
kind of risk that might incur in their Investments.
Explaining and Graphically depicting how SML (Security Market Line) and CML
(Capital Market Line) are different:
Figure 1: Diagram of SML (Security Market Line) and CML (Capital Market Line)

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(Source: Sharpe 2017)
The above figure mainly helps in identifying the overall difference between security
market line and capital market line which relatively provide the investors with adequate
insights of their investment scope. the function of capital market line and security market line
is the relatively same, as it allows investors to gauge into the level of risk and return provided
from their investment. However, the difference of capital market line and security market line
is relatively immense, which characterizes the level of risk and return attributes of an
investor. Investors using the Capital MarketLine is able to identify stocks which could
provide the maximum returns with minimum risk involved in Investments. On the other hand,
the security market line allows the investors to detect the viability of their Investments and
whether they are within the confinements of the market return and risk. The major difference
between the capital market line and security market line are depicted as follows.
Risk to return relationship:
Capital market line and security market line has different relationships between the
risk and return attributes of relative stocks. The capital market line relatively represents a
graphical diagram, which represents the relationship between expected return an efficient
portfolio and the total risk involved in investment. The graphical representation relatively
allows investors to identify investment scope, which has the least risk and highest rate of
return from investment. However, with the help of security market line investors are only
able to detect the individual risk and return condition orphan investment opportunity. The
function of systematic and non-diversifiable risk is identified with the help of security market
line. In this context, Sembiring et al. (2016) stated that investors by detecting stock returns
and risk are able to identify the maximum returns, which could be provided from the