Why is the Slope of SML the market risk premium and not BETA?

CFA Level II
#1

[original post removed]

#2

Merry Xmas Lock,

The SML is just the CAPM in graphical form. E[Ri]= rf+Betai*(E[Rm]-rf) follows the linear function y=a+b*x where a is the intercept,b the slope and x the variable on the x-axis. The SML plots beta on the x axis and average asset returns on the y axis. The beta itself can be taken from a timeseries regression of excess asset return on excess market returns. Repeat this process for all assets and you end up with a collection of betas,one for each asset. Plot the average return of each asset against the estimated beta for that asset and you end up with the SML.

#3

Thanks for the explanation Alladin. Merry Xmas to you too!

#4

Beta is the x-variable