A stock with an actual return that lies above the security market line has:
A)more systematic risk than the overall market.
B)more risk than warranted based on the realized rate of return.
C)yielded a higher return than expected for the level of risk assumed.
D)less systematic risk than the overall market.
E)yielded a return equivalent to the level of risk assumed.

Question

Quizplus · Accepted Answer

The security market line represents the expected return based on the stock's systematic risk. Any stock that has an actual return above the security market line has yielded a higher return than expected for the level of risk assumed. Therefore, option C is the correct answer. Options A, B, D, and E are incorrect because they do not accurately reflect the relationship between the actual return and the security market line.

A Stock with an Actual Return That Lies Above the Security