If the expected return is above the required return on an asset, rational investors will ________.
A) buy the asset, which will drive the price up and cause expected return to reach the level of the required return
B) buy the asset, which will drive the price down and cause the expected return to reach the level of the required return
C) sell the asset, which will drive the price up and cause the expected return to reach the level of the required return
D) sell the asset, since price is expected to decrease

Question

Quizplus · Accepted Answer

If the expected return is above the required return, rational investors will try to take advantage of the opportunity by buying the asset, which will increase demand and drive the price up until the expected return equals the required return.

If the Expected Return Is Above the Required Return on an Asset