Question

The equation of the SML which defines the relationship between the expected return and beta is the what?

Answer 1

The Security Market Line (SML) is nothing but CAPM model.

The equation : required rate of return = Rf + beta(Rm-Rf)

it explains an investor when to buy or sell the stock.

Now If the expected return < the return required by CAPM

The stock would be overvalued and therefore should be sold or an investor should maintain a short position.

and If the expected return > the return required

An investor should buy the stock because the stock expects to return an amount greater than required based on the risk