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The difference between the average rate of return on a security or a portfolio of securities...

  1. The difference between the average rate of return on a security or a portfolio of securities and its SML relation is called _____________. (1 pts.)
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Answer #1

Alpha

The difference between the average rate of return on a security or a portfolio of securities and it's SML relation is called alpha

SML or secure market line is the graphical representation of Capital Asset Pricing Model.The model gives the expected rate of return of an asset as a function of diversifiable and non diversifiable risk

Alpha also known as excess return or abnormal rate ofreturn is a performance measure.Alpha is commonly used to rank active mutual funds.A positive alpha serves as an indicator of the fact that the stock is undervalued and negative alpha indicates that the stock is overvalued.Portfolio managers who manage to maintain a positive alpha consistently are considered superior.

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