According to the Capital Asset Pricing Model (CAPM), fairly-priced securities have
A) positive betas.
B) zero alphas.
C) negative betas.
D) positive alphas.

Question

Quizplus · Accepted Answer

In the Capital Asset Pricing Model (CAPM), a fairly-priced security is one that lies on the Security Market Line (SML), which means it is offering a return that is commensurate with its risk. The alpha (α) measures the difference between a security's actual returns and its expected returns based on its beta (β) and the market's overall returns. A zero alpha indicates that the security is performing exactly as expected given its risk, hence it is fairly priced. Positive or negative alphas would indicate overperformance or underperformance relative to the CAPM expectations, respectively.

According to the Capital Asset Pricing Model (CAPM), Fairly-Priced Securities