The security market line (SML) shows the relationship between beta and expected return.

The following graph shows stocks' betas () and expected returns ():

Assume that the CAPM holds and expectations of stocks' returns and betas are correctly measured.

Which statement is NOT correct?

a.

The price of Stock B will fall, and the excess return of Stock B will rise.

b.

Rational investors should sell Stock D.

c.

Stock C has the same systematic risk as the market portfolio.

d.

Stock E is fairly priced.

e.

Stock A has a negative excess return (a negative alpha).

SML E A A D Mm E M B B 1