2024 CFA Level I Exam: CFA Study Preparation

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Basic Question 3 of 5

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

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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.

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® 2024 Level I Curriculum, Volume 2, Module 2.