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Basic Question 3 of 5
If a stock is over priced, it would plot ______.
B. on the security market line
C. below the security market line
A. above the security market line
B. on the security market line
C. below the security market line
User Contributed Comments 1
| User | Comment |
|---|---|
| 0is4eva | Reading 79, p. 794: "Any security with an estimated rate of return that plots above the SML would be considered under-priced because it implies that you ESTIMATED you would receive a rate of return on the security that is above its REQUIRED rate of return based on its SYSTEMATIC RISK." The reverse: an overpriced stock plots below the SML since it provides less return than the required rate of return based on its systematic risk. |
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Learning Outcome Statements
describe and demonstrate applications of the CAPM and the SML
CFA® 2025 Level I Curriculum, Volume 2, Module 2.