Which one of the following describes a portfolio that plots above the security market line? a....

Which one of the following describes a portfolio that plots above the security market line?

a. The security's beta must equal 1.0.

b. The security's beta must be greater than 1.0.

c. The security is overvalued in the marketplace.

d. The risk premium of the security is less than expected given the security's beta

e. The security's return is too high.

Expert Solution

Option E is correct

The security's return is too high

If stock is above SML line it means it is undervalued and expected return is too high

jeff jeffy answered 2 years ago

A project which plots below the security market line (SML) A. has a positive net present...

A project which plots below the security market line (SML) A. has a positive net present value. B should be rejected. C should be accepted. D None of the above.

(Security market line) You are considering the construction of a portfolio comprised of equal investments in...

(Security market line) You are considering the construction of a portfolio comprised of equal investments in each of four different stocks. The betas for each stock are found below: Asset Beta A 2.40 B 0.95 C 0.55 D −1.40 a. What is the portfolio beta for your proposed investment portfolio? b. How would a 25 percent increase in the expected return on the market impact the expected return of your portfolio? c. How would a 25 percent decrease in the...

8. The Capital Asset Pricing Model and the security market line Wilson holds a portfolio that...

8. The Capital Asset Pricing Model and the security market line Wilson holds a portfolio that invests equally in three stocks (wAwA = wBwB = wCwC = 1/3). Each stock is described in the following table: Stock Beta Standard Deviation Expected Return A 0.5 23% 7.5% B 1.0 38% 12.0% C 2.0 45% 14.0% An analyst has used market- and firm-specific information to generate expected return estimates for each stock. The analyst’s expected return estimates may or may not equal...

The following graph plots the current security market line (SML) and indicates the return that investors require from holding stock from Happy Corp.

Changes to the security market lineThe following graph plots the current security market line (SML) and indicates the return that investors require from holding stock from Happy Corp. (HC). Based on the graph, complete the table that follows:00.51.01.52.020.016.012.08.04.00REQUIRED RATE OF RETURN (Percent)RISK (Beta)Return on HC's StockCAPM ElementsValueRisk-free rate (rRFrRF) Market risk premium (RPMRPM) Happy Corp. stock’s beta Required rate of return on Happy Corp. stock An analyst believes that inflation is going to increase by 2.0% over the next year, while the market risk...

Which of the following best describes the job duties of security administrators? a) They create security...

Which of the following best describes the job duties of security administrators? a) They create security policies. b) They design secure systems. c) They check if employees comply with security policies. d) They ensure appropriate separation of duties exists to prevent abuse of privilege. Managing incident response is a key area of which of the following CBK domains? a) Information security governance and risk management b) Security architecture and design c) Business continuity and disaster recovery planning d) Operations security...

Explain the Capital Market Line, the Security Market Line and the difference between the two.

Which one of the following best describes a broker?

Which one of the following best describes a broker?A.intermediary who arranges trades between a buyer and a sellerB.trader who buys and sells from his or her inventoryC.firm which charges a commission for arranging a transactionD.person who buys securities for his or her own account on an exchange floorE.trader who transacts business on behalf of a securities issuer

Characteristic Line and Security Market Line You are given the following set of data: HISTORICAL RATES...

Characteristic Line and Security Market Line You are given the following set of data: HISTORICAL RATES OF RETURN Year NYSE Stock X 1 - 26.5% - 17.0% 2 37.2 16.0 3 23.8 14.0 4 - 7.2 5.0 5 6.6 9.9 6 20.5 19.4 7 30.6 17.9 Use a spreadsheet (or a calculator with a linear regression function) to determine Stock X's beta coefficient. Round your answer to two decimal places. Beta = Determine the arithmetic average rates of return for...

Using the properties of the capital market line (CML) and the security market line (SML), determine...

Using the properties of the capital market line (CML) and the security market line (SML), determine which of the following scenarios are consistent or inconsistent with the CAPM. Explain your answers. Let A denote arbitrary securities while F and M represent the riskless asset and the market portfolio respectively. a. Security E[R] σ(R) A 25% 30% M 15% 30% b. Security E[R] σ(R) A 25% 55% F 5% 0% M 15% 30%

The Security Market Line defines the required rate of return for a security to be worth...

The Security Market Line defines the required rate of return for a security to be worth buying or holding. The line, depicted in blue in the graph, is the sum of the risk-free return (rf in the slider) and a risk premium determined by the market-risk premium (RPM) multiplied by the security's beta coefficient for risk. Drag the rf slider below the graph to change the amount of the risk-free return. These changes reflect changes in inflation. Drag the RPM...

Question