An underpriced security will plot
A)on the Security Market Line.
B)below the Security Market Line.
C)above the Security Market Line.
D)either above or below the Security Market Line depending on its covariance with the market.
E)either above or below the Security Market Line depending on its standard deviation.

Question

Quizplus · Accepted Answer

An underpriced security will plot above the Security Market Line (SML) because it offers a higher expected return for its level of risk compared to what the SML predicts.

An Underpriced Security Will Plot