Question: Consider the CAPM. If stock XYZ plots below the security market line, which of the following statements is true? Stock XYZ is underpriced and a

Consider the CAPM. If stock XYZ plots below the security market line, which of the following statements is true?

Stock XYZ is underpriced and a trader should buy it.

Stock XYZ is fairly priced.

Stock XYZ is overpriced and a trader should buy it.

Stock XYZ is overpriced and a trader should short sell it.

Paul is more risk averse than Henry. According to the CAPM, which of the following statements is correct?

Paul invests 100% in the market portfolio while Henry invests 100% of his money in Tesla stock.

Paul allocates a smaller fraction of his wealth to the market portfolio.

Pauls optimal risky portfolio is the market portfolio while Henrys optimal risky portfolio is the risk free asset.

Pauls optimal complete portfolio is on the Capital market line while Henrys optimal complete portfolio is below the Capital market line.

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