Answer :
Option(2) is correct. along the security market line choice. This is according to the capital asset pricing model(CAPM).
Capital asset pricing model describe the relationship between risk or the general perils of investing, and expected return for assets, particularly stocks. Under the CAPM model, a security plotted above the security market line is regarded as expensive, while a security plotted below the security market line is regarded as cheap or undervalued. However, on the other hand, if a security is plotted along the security market line then the same is considered as fairly valued. It is a finance model that establishes a linear relationship between the required return on an investment and risk. This describes the capital asset pricing model.
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