Security Market Line (SML)

The speaker discusses the difference between the security market line and the capital market line.  The capital market line describes the set of different portfolios that represent the asset allocation decisions of two portfolios; one that invests in a risk free asset and one that invests in the market porfolio.  The further we move up the capital market line, the greater leverage that is being use to amplify the return.

He illustrates how the capital market line and security market line (efficient frontier) intersect at the market porfolio.  The market portfolio is the portfolio which maximizes the sharpe ratio.