If we plot the risk-return profile of a project on a graph and it falls below the Security Market Line, the project is creating value.

Question

Quizplus · Accepted Answer

The Security Market Line (SML) represents the expected return of an investment as a function of its risk (beta). If a project falls below the SML, it means it is offering lower returns for its level of risk compared to the market average, indicating it is not creating value efficiently.

If We Plot the Risk-Return Profile of a Project on a Graph