Use the Figure for the Question(s)below

question 5

Multiple Choice

Use the figure for the question(s) below.Consider the following graph of the security market line:
-Portfolio "A":

• A)has a relatively lower expected return than predicted.
• B)has a positive alpha.
• C)falls below the SML.
• D)is overpriced.

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Definitions:

Option Premium

An option premium is the price that a buyer pays to the seller for an options contract, which gives the buyer the right, but not the obligation, to buy or sell an underlying asset at a specified strike price.

Conversion Price

The predetermined price at which convertible securities can be exchanged for common stock.

Convertible Bond

A type of bond that can be converted into a predetermined number of the issuing company's shares at certain times during its life, usually at the discretion of the bondholder.

Par Value

The face value of a bond or a stock, as stated by the issuing company.