If a stock's expected return as seen by the marginal investor exceeds his or her required return,then the investor will buy the stock until its price has risen enough to bring the expected return down to equal the required return.

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Quizplus · Accepted Answer

This statement is known as the equilibrium principle and is a fundamental concept in finance. When the expected return of a stock exceeds the required return, investors will demand the stock, driving up the price and lowering the expected return until it is equal to the required return. Conversely, if the expected return is lower than the required return, investors will sell the stock, causing the price to fall and the expected return to increase until it reaches equilibrium with the required return.

If a Stock's Expected Return as Seen by the Marginal