Given recent evidence concerning the CAPM, which of the following portfolios might be expected to plot above the security market line?
A)a portfolio of cyclical stocks.
B)a portfolio that includes borrowed funds.
C)a portfolio of smaller companies.
D)a portfolio split between Treasury bills and the market index.

Question

Quizplus · Accepted Answer

Portfolios of smaller companies might be expected to plot above the security market line due to the small firm effect, which suggests that smaller companies often yield higher risk-adjusted returns than predicted by the CAPM.

Given Recent Evidence Concerning the CAPM, Which of the Following