. returns • Understand the impact of diversification • Understand the systematic risk principle • Understand the security market line • Understand the risk-return trade-off • Be able to use the Capital. Chapter 13 Return, Risk, and the Security Market Line McGraw-Hill/Irwin Copyright © 2010 by The McGraw-Hill Companies, Inc. All rights reserved. Key Concepts and Skills • Know. Portfolio Risk • Systematic Risk and Beta • The Security Market Line • The SML and the Cost of Capital: A Preview 13- 3 Expected Returns • Expected returns are based on the probabilities of possible