If expected return is less than required return on an asset, rational investors will

Question

Quizplus · Accepted Answer

If the expected return is less than the required return, it means that the asset is not providing enough return to compensate for the risk taken. Rational investors will sell the asset, which will increase the supply and decrease the demand, leading to a decrease in price. As the price decreases, the expected return will increase and eventually reach the required return. Therefore, C is the best answer.

If Expected Return Is Less Than Required Return on an Asset