If the project beta, IRR co-ordinates plot above the SML the project should be:
A) accepted because it is overvalued.
B) accepted because it is undervalued.
C) rejected because it is overvalued.
D) rejected because it is undervalued.

Question

Quizplus · Accepted Answer

The project should be rejected because it is overvalued. The SML represents the relationship between risk and return. If the project beta, IRR co-ordinates plot above the SML, it means that the project is overvalued and should be rejected.

If the Project Beta, IRR Co-Ordinates Plot Above the SML