Question

question 1
a security that falls below the security market line has
______.

○ a low expected return and a high price

○ a high expected return and a low price

○ a low expected return and a low price

○ a high expected return and a high price

Explanation:

The Security Market Line (SML) represents the relationship between expected return and systematic risk (beta) for securities. A security below the SML has a lower expected return than what is justified by its risk. A lower expected return relative to its risk implies the security is overpriced (high price) because investors would demand a higher return for the risk, so if the return is low, the price is high (since price and return are inversely related in valuation). So the correct option is the one with low expected return and high price.

Answer:

A. a low expected return and a high price