What is the difference between CML and SML? - ProProfs
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What is the difference between CML and SML?

Asked by B. Wright on Jun 24, 2019

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O. Bickis

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O. Bickis
Corporate employee, MBA, Stockton

Answered on Jul 22, 2019

CML stands for Capital Market Line while SML means Security Market Line. CML is responsible for showing the rates of return for the portfolio that is being checked while the SML is responsible for knowing the risk of the market. It will also show the potential return that can be received from the market.

This is great in letting people know the potential returns that they can get. They will know when they can potentially get their individual assets. All of the security factors will be determined by the SML while the risk-free assets can be determined by the CML. By considering these two, it will be easier to make the right choices.

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I. Klose

I. Klose
Accountant, Franklin

Answered on Jul 17, 2019

It is best to know what CML and SML stand for first. CML means Capital Market Line while SML means the Security Market Line. SML is usually used to check the current risks that may be involved in introducing new products, services, and goods to the market.

This will show if the market will embrace the original item that will possibly be introduced. CML will show the rates of the portfolio of the company. The use of these two is always needed when companies want to know whether introducing a new item will be worth it or not. The risk-free assets can be observed further with the use of the CML.

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