In other words, the expected return of A is greater than the required return for the same level of risk. Additionally, this Portfolio A is undervalued and worth buying. Portfolio B is overvalued and should be sold. Indeed, at the same beta coefficient, the expected return is lower than the SML. If investors can get a higher return for the same level of risk, they will not choose the lower level. In conclusion, investors can use CAPM and SML to identify the stock price and choose whether to sell it or not. Limitations of the CAPM and the Three-Factor Model Although the CAPM is widely used in asset valuation, the CAPM has some limitations. First, the CAPM only thinks about beta and ignores certain risk factors. Second, the ideal hypothesis is difficult to achieve. In other words, the market is not perfect and cannot fulfill all the basic principles of CAPM. Third, it is not easy to estimate the beta coefficient. Additionally, beta is estimated from historical data which may change in the future, investors only care about future price variability, so beta can sometimes be considered as