Question 25

Apply Capital Asset Pricing Model and Securities Market Line to determine which one of the following statements is incorrect?

Period: 2017.1 - 2022.12	Three-month Treasury-bill	S&P 500 stock index	ABC stocks
Average monthly return	0.0009	0.0080	0.0070
Standard deviation of returns			0.0726
Beta Coefficient			1.3773

A. ABC has a market risk smaller than the market portfolio because it has a standard deviation of the returns less than one.

B. ABC's common stocks are overvalued during 2017 and 2022.

C. ABC generates a negative Alpha (abnormal return) for its shareholders during 2017 and 2022.

D. ABC stock is plotted to the right of the S&P 500 stock index in the SML graph.