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Stock A lies above the Security Market Line (SML) which graphs the expected return vs. the stocks beta along the line connecting the risk-free rate
Stock A lies above the Security Market Line (SML) which graphs the expected return vs. the stocks beta along the line connecting the risk-free rate security and the overall equity market. Stock B lies below the SML. Which comments below are most accurate?
Group of answer choices
a. Buy Stock A and Short Stock B to earn an arbitrage profit.
b. Short Stock A and Buy Stock B to earn an arbitrage profit.
c. Buy both Stock A and Stock B to earn an arbitrage profit.
d. Short both Stock A and Stock B to earn an arbitrage profit.
e. Not enough information is provided to determine if an arbitrage profit can be made.
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