According to the Capital Asset Pricing Model (CAPM), underpriced securities have
A) positive betas.
B) zero alphas.
C) negative betas.
D) positive alphas.
E) None of the options are correct.

Question

Quizplus · Accepted Answer

Under the Capital Asset Pricing Model (CAPM), an underpriced security is indicated by a positive alpha. Alpha represents the abnormal rate of return on a security over the predicted return by CAPM, suggesting that the security is providing a higher return than expected for its level of risk.

According to the Capital Asset Pricing Model (CAPM), Underpriced Securities