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

Question

Quizplus · Accepted Answer

A stock that lies above the security market line (SML) has provided a higher return than what would be expected based on its level of systematic risk, according to the Capital Asset Pricing Model (CAPM). This indicates that the stock has performed better than the market anticipated for its risk level.

A Stock with an Actual Return That Lies Above the Security