What would you recommend to an investor who is considering an investment that, according to its Beta, plots below the security market line (SML)?
A)invest; return is high relative to risk
B)don't invest; risk is high relative to return
C)invest; stocks revert to the SML over time
D)don't invest; stocks below the SML have too much unique risk

Question

Quizplus · Accepted Answer

The Security Market Line (SML) represents the expected return of a security or portfolio in relation to its risk (beta). If an investment plots below the SML, it indicates that the investment offers lower expected returns for its level of risk compared to the market average, suggesting that the risk is high relative to the return.

What Would You Recommend to an Investor Who Is Considering