If Expected Return Is Less Than Required Return on an Asset,rational

question 22

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 expected return to reach the required return.
• B) Sell the asset, which will drive the price down and cause the expected return to rise.
• C) Sell the asset, which will drive the price up and cause the expected return to drop.
• D) Buy the asset, since price is expected to increase.

---

Definitions:

Convertible Securities

Financial instruments, such as bonds or preferred shares, that can be converted into a specified number of common shares of the issuing company.

Diluted Earnings

Represents the earnings per share (EPS) if all convertible securities were converted into common stock.

Dilutive

Referring to a financial action or arrangement, such as the issuance of new shares, that decreases an existing shareholder's percentage of ownership.

Antidilutive

Refers to financial transactions or securities that, if exercised or converted into common stock, would increase earnings per share.