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