If a security plots below the security market line, it is:
A) ignoring all of the security's unique risk.
B) underpriced, a situation that should be temporary.
C) offering too little return to justify its risk.
D)a defensive security, which expects to offer lower returns.

Question

Quizplus · Accepted Answer

A security that plots below the security market line is offering too little return to justify its risk. This means that its expected return is less than what is expected based on its level of risk. It is not necessarily ignoring its unique risk, and it may not be underpriced (as it could be overpriced or fairly priced). It is also not necessarily a defensive security, as it could be any type of security.

If a Security Plots Below the Security Market Line, It