Chapter 14: Relationship between return and asset classes

Question 1

Required return

Answer 1

Required return = rf real rate of return + expected inflation + risk premium

Question 2

Expected return

Answer 2

Expected return = initial income yield + expected capital growth

If assets are fairly priced, expected return = required return

Question 3

An asset is cheap if

Answer 3

Expected return is greater than required return

Question 4

Price of equity investment

Answer 4

Dividend / dividend yield