Question: The historical returns data for the past three years for Company A's stock is -6.0%, 15%, 15% and that of the market portfolio is 10%,

The historical returns data for the past three years for Company A's stock is -6.0%, 15%, 15% and that of the market portfolio is 10%, 10% and 16%. According to the security market line (SML), the Stock A is:

A. Over priced

B. Under priced

C. Correctly priced

D. Need more information

(-6.0% + 15% + 15%)/3 = 8%; (8% < 18%)

Can you tell me where the 18% came from. I'm confused. Please help me. Thanks

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