Given the CAPM's noted difficulties, which of the following statements may be correct concerning a low price-earnings ratio stock?
A)the stock has too much systematic risk.
B)the stock plots above the security market line.
C)the stock plots below the security market line.
D)the stock has a zero Beta.

Question

Quizplus · Accepted Answer

A low price-earnings ratio stock may plot above the security market line, indicating it is undervalued and offers a higher expected return for its level of systematic risk.

Given the CAPM's Noted Difficulties, Which of the Following Statements