If an Asset's Expected Return Is Less Than Its Required

question 5

Multiple Choice

If an asset's expected return is less than its required return,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)sell 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)buy the asset,since price is expected to increase

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Definitions:

Interest Expense

This is the cost incurred by an entity for borrowed funds, reflected as a line-item expense in the income statement.

Income Statement

A financial statement that shows a company’s revenue and expenses over a specified period of time, resulting in net profit or loss.

Liability

Financial obligations or debts owed by a business to external parties, which must be settled over time through the transfer of economic benefits including money, goods, or services.

Goods

Tangible products or merchandise that are manufactured, bought, and sold in commerce.