12. Mr. K wants to know whether he should buy or sell XYZ stock, by drawing...

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12. Mr. K wants to know whether he should buy or sell XYZ stock, by drawing the security market line (SML). What would be Mr. K's conclusion? A) XYZ stock is located below the SML; thus, he should buy since it is undervalued. B) XYZ stock is located below the SML; thus, he should sell since it is overvalued. C) XYZ stock is located above the SML; thus, he should buy since it is undervalued. D) XYZ stock is located above the SML; thus, he should sell since it is overvalued. Mr. K created his own portfolio consisting of only "firm XYZ" (100% weight). He has analyzed the one-year data in 2021, and found the followings: ✓Mr. K's portfolio: the average return = 2%, SD = 30%. ✓ The market: the average return = 12%, SD = 10% ✓ Risk-free rate = 4% ✓ XYZ's beta = 2.0. 12. Mr. K wants to know whether he should buy or sell XYZ stock, by drawing the security market line (SML). What would be Mr. K's conclusion? A) XYZ stock is located below the SML; thus, he should buy since it is undervalued. B) XYZ stock is located below the SML; thus, he should sell since it is overvalued. C) XYZ stock is located above the SML; thus, he should buy since it is undervalued. D) XYZ stock is located above the SML; thus, he should sell since it is overvalued. Mr. K created his own portfolio consisting of only "firm XYZ" (100% weight). He has analyzed the one-year data in 2021, and found the followings: ✓Mr. K's portfolio: the average return = 2%, SD = 30%. ✓ The market: the average return = 12%, SD = 10% ✓ Risk-free rate = 4% ✓ XYZ's beta = 2.0.

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D XYZ stock is located above the SML thus he should sell since it is overvalued Heres why The Securi... View the full answer