A security that is fairly priced will have a return that plots ________ the security market line.
A)below
B)on or below
C)on
D)on or above
E)above

Question

Quizplus · Accepted Answer

The security market line represents the expected return for a given level of risk. Securities that are undervalued (lower price than their intrinsic value) will plot above the security market line, and those that are overvalued (higher price than their intrinsic value) will plot below the security market line. A fairly priced security, by definition, has a price equal to its intrinsic value and, therefore, will plot exactly on the security market line.

A Security That Is Fairly Priced Will Have a Return