In the question above (#37), you calculated the return you expected from holding ENCANA stock using the CAPM. However, when you plot this on the Security Market Line (SML), you find that it plots well above the SML. What conclusions can you draw from this observation?

• Neither of the above are true.

• ENCANA stock is over-valued. The stock price should fall until the stock once again plots along the SML.

• All of the above are true.

• ENCANA stock is under-valued. The stock price should rise until the stock once again plots along the SML.