If the expected return is less than the required return, investors will sell the asset, because it is not expected to earn a return commensurate with its risk.

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Investors typically seek to earn a return that is commensurate with the risk they are taking on. Therefore, if the expected return of an asset is less than what an investor requires to compensate them for the risk they are taking, they are likely to sell the asset and look for other investment opportunities. This selling pressure can lead to a decrease in the price of the asset, which in turn may increase its expected return until it is once again in line with the required return.

If the Expected Return Is Less Than the Required Return