This problem will test your knowledge of the applications of Security Mar- ket Line(SML): Expected Return...

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This problem will test your knowledge of the applications of Security Mar- ket Line(SML): Expected Return (E(R)) The Security Market Line (SML) Market portfolio (M) E(RM) R₁ Negative Reta 0 1.0...(GM.M/GM² = 1.0) Beta (B)... (Mσ M²) Figure 1: SML(Cite: Kathleen Hodnett[doi: 10.19030/iber.v11i8.7163]) Here, U, E, and O stand for three possible real situations at the same ẞ. Please select the correct answer among the presented answers: (A) U point means the portfolio is higher-priced than CAPM predicted. It could be caused by some additional risks not included in CAPM. (B) O point means the portfolio is higher-priced than CAPM predicted. It could be caused by some additional risks not included in CAPM. (C) U point means the portfolio is lower-priced than CAPM predicted. It proves that CAPM cannot capture systematic risk very well. (D) O point means the portfolio is lower-priced than CAPM predicted. It proves that CAPM cannot capture systematic risk very well. This problem will test your knowledge of the applications of Security Mar- ket Line(SML): Expected Return (E(R)) The Security Market Line (SML) Market portfolio (M) E(RM) R₁ Negative Reta 0 1.0...(GM.M/GM² = 1.0) Beta (B)... (Mσ M²) Figure 1: SML(Cite: Kathleen Hodnett[doi: 10.19030/iber.v11i8.7163]) Here, U, E, and O stand for three possible real situations at the same ẞ. Please select the correct answer among the presented answers: (A) U point means the portfolio is higher-priced than CAPM predicted. It could be caused by some additional risks not included in CAPM. (B) O point means the portfolio is higher-priced than CAPM predicted. It could be caused by some additional risks not included in CAPM. (C) U point means the portfolio is lower-priced than CAPM predicted. It proves that CAPM cannot capture systematic risk very well. (D) O point means the portfolio is lower-priced than CAPM predicted. It proves that CAPM cannot capture systematic risk very well.

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