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Assuming the market is efficient what is the relationship between a stock’s price and the security market line?
Please advise. Thank you.
The security market line plots the required return as determined by the security’s beta, and if the market is efficient then it is the required return that determines the market value of the security.
Although Paper AFM does examine CAPM and the valuation of securities in detail (and both are covered in full in our free lectures), it does not ask questions about the security market line.
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