What would you recommend to an investor who is considering an investment that plots below the security market line?
A) Invest; The expected return is high relative to the risk.
B) Don't invest; The risk is high relative to the expected return.
C) Invest; All stocks revert to the SML over time.
D) Don't invest; All stocks below the SML are low-growth stocks.

Question

Quizplus · Accepted Answer

Investing in a security that plots below the security market line means that the risk is higher than the expected return. As an investor, it is important to maximize returns while minimizing risks. Therefore, it is not recommended to invest in such securities as there are better investment options available in the market that offer higher expected returns with lower risks.

What Would You Recommend to an Investor Who Is Considering