header bg

Question:

Portfolio A has a higher total risk but lower total return than the market portfolio. Which of the following is least likely?

A Portfolio A cannot possibly lie on the SML.
Explaination

The portfolio can lie on the SML if most of its total risk is unsystematic risk that can be diversified away. To plot on the SML, the portfolio must have a beta of less than 1, as its expected return is lower than that of the market portfolio.