The market rate of return is 11 percent and the risk-free rate of return is 3 percent. Lexant stock has 3 percent less systematic risk than the market and has an actual return of 12 percent. This stock:
Is underpriced.
Is correctly priced.
Will plot below the security market line.
Will plot to the right of the overall market on a security market line graph.
Will plot on the security market line.