An asset that has an expected rate of return above the security market line:
A) Is overpriced.
B) Is underpriced.
C) Is less risky than the market.
D) Has a beta greater than 1.
E) Has a standard deviation equal to 0.

Question

Quizplus · Accepted Answer

An asset with an expected rate of return above the security market line (SML) is considered underpriced according to the Capital Asset Pricing Model (CAPM). This is because the SML represents the expected return for a given level of risk (beta), and any asset above this line offers a higher return for its level of risk than what the market typically offers, indicating it is a good value or underpriced.

An Asset That Has an Expected Rate of Return Above