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

question 16

Multiple Choice

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

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Definitions:

Export

The process of sending goods or services from one country to another country for sale or trade.

Oranges

A citrus fruit known for its round shape and bright orange skin, commonly processed for juice or eaten fresh.

Comparative Advantage

The skill of an entity—be it an individual, a company, or a country—to deliver a good or service more efficiently, incurring lower opportunity costs, than competing parties.

Absolute Advantage

The ability of an individual, company, or country to produce a good or service at a lower cost per unit than the competition.