If Expected Return Is Less Than Required Return on an Asset

question 92

Multiple Choice

If expected return is less than required return on an asset, rational investors will

• A) buy the asset, which will drive the price up and cause the expected return to reach the level of the required return.
• B) buy the asset, since the price is expected to increase.
• C) sell the asset, which will drive the price down and cause the expected return to reach the level of the required return.
• D) sell the asset, which will drive the price up and cause the expected return to reach the level of the required return.

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Definitions:

Social Security Taxes

Taxes paid by workers and employers to fund the Social Security program, which provides retirement, disability, and survivorship benefits.

Medicare Taxes

Taxes withheld from pay or paid on profits that contribute to the Medicare program, providing health insurance for individuals over 65.

Self-Employment Tax

A social security and Medicare tax primarily for individuals who work for themselves.

Tax Liability

The total amount of tax that an individual or entity is legally obligated to pay to a tax authority.