For capital investments where the forecasted return is above the investor's required return and below the capital market line, the investment is likely ________________.
A) overvalued
B) undervalued
C) properly values
D) None of the options are correct

Question

Quizplus · Accepted Answer

If the forecasted return of a capital investment is above the investor's required return but below the capital market line, it indicates that the investment offers a higher return than what the investor demands for its risk level, yet it does not reach the optimal risk-return trade-off represented by the capital market line. This scenario suggests the investment is undervalued because it provides a higher return than required for its risk, implying it could be a good opportunity for investment.

For Capital Investments Where the Forecasted Return Is Above the Investor's