If a security is above SML but same beta if a security is below SML but same beta if a security is above SML and right to the true beta if a security is above SML and left to the true beta if a security is below sml and right to the true beta if a security is below sml and left to the true beta
On SML - Correctly priced. Above SML - Underpriced. Under SML - Overpriced. Beta is irrelevant for being under or overvalued.
Pepp I don’t even know what left to the true beta and right to the true beta mean =P I believe Lurky is right.
yes he is. nevermind, i am exerting myself too much. today has been a complete waste :((
My best advice would be to reread everything. I’m done with problems. But what’s the left to true beta and right to true beta stuff?
Maybe he is referring to the adjusted beta?
I am not referring to anything guys. I said, i am exerting myself too much. Lurky you were right: On SML - Correctly priced. Above SML - Underpriced. Under SML - Overpriced. Beta is irrelevant for being under or overvalued.
Easy way to remember it: alpha = whatever-you-calculated - whatever-is-on-the-market alpha > 0 => underpriced. alpha < 0 => overpriced. alpha = 0 => properly priced. Whatever-you-calculated in this case would be the SML value. Whatever-is-on-the-market is the actual price of the asset on the market. This applies to all the alpha’s you see in the curriculum, as well as those comparable and fundamental multiples in Equity.