According to the Capital Asset Pricing Model (CAPM),
A) a security with a positive alpha is considered overpriced.
B) a security with a zero alpha is considered to be a good buy.
C) a security with a negative alpha is considered to be a good buy.
D) a security with a positive alpha is considered to be underpriced.
E) none of these.

Question

Quizplus · Accepted Answer

According to CAPM, a positive alpha indicates that a security is underpriced because it is expected to yield a return higher than what is predicted by the model, suggesting it is a good investment opportunity.