Which of the following describes a portfolio that plots below the security market line?
A) The security is undervalued.
B) The security is providing a return that is greater than expected.
C) The security's reward to risk ratio is too low.
D) The security's beta is too low.
E) The security provides a return that exceeds the average return on the market.

Question

Quizplus · Accepted Answer

Securities that plot below the Security Market Line (SML) are considered to be offering less return for their level of risk compared to the market average. This means their reward to risk ratio is too low, not compensating investors adequately for the risk they are taking.

Which of the Following Describes a Portfolio That Plots Below