Where will a security plot in relation to the security market line (SML) if it h
ID: 2654384 • Letter: W
Question
Where will a security plot in relation to the security market line (SML) if it has a beta of 0.8 and is underpriced?
to the right of the overall market and above the SML
to the right of the overall market and below the SML
to the left of the overall market and above the SML
to the left of the overall market and below the SML
on the SML
to the right of the overall market and above the SML
to the right of the overall market and below the SML
to the left of the overall market and above the SML
to the left of the overall market and below the SML
on the SML
Explanation / Answer
Where will a security plot in relation to the security market line (SML) if it has a beta of 0.8 and is underpriced?
to the left of the overall market and above the SML
Note :
If Stock is under priced than Expected Return is higher than required return and therefore it is above SML and since beta is 0.8 which is lower than overall market i.e left of the overall market