The historical returns data for the past three years for Company A's stock is -6.0%, 15%,
15% and that of the market portfolio is 10%, 10% and 16%. According to the security market line (SML), the Stock A is:
A) Over priced
B) Under priced
C) Correctly priced
D) Need more information

Question

Quizplus · Accepted Answer

The average return of Company A's stock is 8%, which is less than the market's average return of 12%. According to the SML, if a stock's return is less than the market return, it is considered overpriced.

The Historical Returns Data for the Past Three Years for Company