Given recent evidence concerning the CAPM,which of the following portfolios might be expected to plot above the security market line?
A) A portfolio of cyclical stocks
B) A portfolio that includes borrowed funds
C) A portfolio of smaller companies
D) A portfolio split between Treasury bills and the market index

Question

Quizplus · Accepted Answer

Smaller companies often have higher returns due to their higher risk, which can lead them to plot above the security market line, indicating they may offer higher returns for their level of risk compared to the CAPM prediction.

Given Recent Evidence Concerning the CAPM,which of the Following Portfolios