If an asset's expected return is less than its required return,rational investors will ________.

Question

Quizplus · Accepted Answer

Rational investors would sell the asset, which will drive the price down and cause the expected return to increase to the level of the required return. This is because investors aim to maximize their returns, and if the expected return is lower than the required return, it means that the asset is not providing enough value to justify the investment. Selling the asset would also decrease its price, making it more attractive to potential buyers who can then capitalize on the increased expected return.

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