CFA Practice Question

There are 294 practice questions for this study session.

CFA Practice Question

If a stock is over priced, it would plot ______.

A. above the security market line
B. on the security market line
C. below the security market line
Correct Answer: C

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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