Which one of the following statements is correct in relation to a security that has a negative Jensen's alpha?
A)The security is overpriced and will plot below the security market line.
B)The security is overpriced and will plot above the security market line.
C)The security is underpriced and will plot below the security market line.
D)The security is underpriced and will plot above the security market line.
E)The security is incorrectly priced but you cannot tell if it is underpriced or overpriced based on the information provided.

Question

Quizplus · Accepted Answer

A negative Jensen's alpha indicates that the security underperformed relative to its expected return based on its level of risk. Therefore, the security is overpriced and will plot below the security market line, as it did not provide adequate compensation for the risk taken.

Which One of the Following Statements Is Correct in Relation