If a stock is overpriced 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

If a stock is overpriced, it means its market price is higher than its intrinsic value. This would result in lower expected return compared to the level of risk. The security market line represents the expected return for a given level of risk, and an overpriced stock would not meet this expectation, causing it to plot below the line.

If a Stock Is Overpriced It Would Plot