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

A security plotting below the SML indicates that it offers a lower return for its level of risk compared to the market, suggesting it is not a good investment.

What Would You Recommend to an Investor Who Is Considering