Consider the Security Market Line (SML)under the One-Factor Model

Multiple Choice

Consider the security market line (SML) under the one-factor model.Assume Point C lies on the SML but an investor would prefer a point that also lies on the SML but is lower and to the left of Point C.How can this investor obtain that point for their portfolio?

A) Replace the lower beta stocks in the portfolio with higher beta stocks
B) Sell a portion of the portfolio and use the proceeds to purchase undervalued stocks
C) Sell the higher beta stocks in the portfolio and replace them with undervalued stocks
D) Replace the portfolio with undervalued stocks and risk-free assets
E) Replace the portfolio with a combination of a higher beta portfolio that lies on the SML and risk-free assets