According to the capital asset pricing model, an overpriced security will plot 1

Question

According to the capital asset pricing model, an overpriced security will plot 10. A. above the security market line B. along the security market line C. below the security market line D. at no relation to the security market line 11. Security X has an expected rate of return of 13% and a beta of 0.8. The risk-free rate is 5%, and the market expected rate of return is 15%. According to the capital asset pricing model, security X is A. fairly priced B. overpriced C. underpriced D. none of these answers 12. Security A has an expected rate of return of 18% and a beta of 1.2. The market expected rate of return is 10%, and the risk-free rate is 5%. The alpha of the stock is B. 5% C. 8% D. 7%

Explanation / Answer

10.) below the security market line
As when sml is plotted,overpriced securities lie below the sml

11) underprice
As expected return is more than the the required rate of return that is ke.

12)7%
As alpha is difference between required and expected rate of return.

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