Chapter14-Relationship between returns on asset classes

Question 1

Framework

Answer 1

1 Formulae for required and expected return
2 Comparing the required and expected returns
3 Expected return on different asset classes
4 Expected growth on dividends
5 Situations where the real returns on conventional bonds will be poor
6 Expected return on cash
7 Expected wages growth

Question 2

Comparing the required and expected returns

Answer 2

If the required return equals the expected return, the assets are ‘fairly priced’.

If the expected return exceeds the required return, the asset appears cheap for that investor.