If the expected return on a stock exceeds the return required by investors, the market will generate enough demand for the security to elevate the price to the point at which required and expected returns become equal.

Question

Quizplus · Accepted Answer

This statement is true according to the principles of efficient markets. If the expected return on a stock is higher than the return required by investors, then demand for the stock will increase, causing the price to rise until the expected return equals the required return.

If the Expected Return on a Stock Exceeds the Return