▁The ▁intercept ▁is ▁the ▁nom inal ▁risk - free ▁rate ▁available ▁for ▁the ▁market , ▁while ▁the ▁slope ▁is ▁the ▁market ▁prem ium , ▁E ( R m ) −   R f . ▁The ▁se cur ities ▁market ▁line ▁can ▁be ▁regarded ▁as ▁representing ▁a ▁single - factor ▁model ▁of ▁the ▁asset ▁price , ▁where ▁B eta ▁is ▁expos ure ▁to ▁changes ▁in ▁value ▁of ▁the ▁Market . ▁The ▁equation ▁of ▁the ▁S ML ▁is ▁thus : ▁ ▁It ▁is ▁a ▁useful ▁tool ▁in ▁determ ining ▁if ▁an ▁asset ▁being ▁considered ▁for ▁a ▁port folio ▁offers ▁a ▁reasonable ▁expected ▁return ▁for ▁risk . ▁Ind ividual ▁se cur ities ▁are ▁pl otted ▁on ▁the ▁S ML ▁graph . ▁If ▁the ▁security ' s ▁expected ▁return ▁versus ▁risk ▁is ▁pl otted ▁above ▁the ▁S ML , ▁it ▁is ▁ ▁under valu ed ▁since ▁the ▁invest or ▁can ▁expect ▁a ▁greater ▁return ▁for ▁the ▁inher ent ▁risk . ▁And ▁a ▁security ▁pl otted ▁below ▁the ▁S ML ▁is ▁over valu ed ▁since ▁the ▁invest or ▁would ▁be ▁accepting ▁less ▁return ▁for ▁the ▁amount ▁of ▁risk ▁assumed . ▁ ▁As set ▁pr icing ▁Once ▁the ▁expected / required ▁rate ▁of ▁return ▁ ▁is ▁calculated ▁using ▁C AP M , ▁we ▁can ▁compare ▁this ▁required ▁rate ▁of ▁return ▁to ▁the ▁asset ' s ▁estimated ▁rate ▁of ▁return ▁over ▁a ▁specific ▁invest ment ▁horizon ▁to ▁determine ▁whether ▁it ▁would ▁be ▁an ▁appropriate ▁invest ment . ▁To ▁make ▁this ▁comparison , ▁you ▁need ▁an ▁independent ▁estimate ▁of ▁the ▁return