An overpriced security will plot
A)on the Security Market Line.
B)below the Security Market Line.
C)above the Security Market Line.
D)either above or below the Security Market Line depending on its covariance with the market.
E)either above or below the Security Market Line depending on its standard deviation.

Question

Quizplus · Accepted Answer

An overpriced security will have a price higher than its intrinsic value, which means its expected return will be lower than the required return. Therefore, it will plot below the Security Market Line.

An Overpriced Security Will Plot