The risk-free rate is currently three percent and Elaina believes the market return will be eleven percent. She also believes that Luscious Lips Inc. stock has ten percent less systematic risk than the market. If Elaina believes Luscious Lips will return twelve percent, then she believes the company:

Will plot below the security market line.

Is correctly priced.

Will plot to the right of the overall market on a security market line graph.

Will plot on the security market line.

Is underpriced.