According to the Capital Asset Pricing Model (CAPM), a security with a
A) positive alpha is considered overpriced.
B) zero alpha is considered to be a good buy.
C) negative alpha is considered to be a good buy.
D) positive alpha is considered to be underpriced.

Question

Quizplus · Accepted Answer

In the Capital Asset Pricing Model (CAPM), alpha represents the abnormal rate of return on a security over the predicted return by the model. A positive alpha indicates that the security is performing better than expected, suggesting it is underpriced relative to its value as predicted by CAPM.

According to the Capital Asset Pricing Model (CAPM), a Security