If a stock were underpriced, it would plot
A)above the security market line.
B)below the security market line.
C)on the security market line.
D)on the y-axis.

Question

Quizplus · Accepted Answer

An underpriced stock offers a higher return for its level of risk than the market average, which is represented by plotting above the security market line (SML) in the Capital Asset Pricing Model (CAPM). This indicates that the stock is providing more return than what would be expected based on its beta, or systematic risk level.

If a Stock Were Underpriced, It Would Plot