Question 776 market efficiency, systematic and idiosyncratic risk, beta, income and capital returns
Which of the following statements about returns is NOT correct? A stock's:
(a) Expected total return will equal its required total return if the stock is fairly priced.
(b) Expected total return will be less than its required total return if the stock is over-priced.
(c) Required total return should be higher than the risk free government bond yield if the stock has a positive beta.
(d) Required total return depends on its total variance, required capital return depends on systematic variance and the dividend yield depends on idiosyncratic variance.
(e) Expected capital return equals the expected total return less whatever the management decide that they will pay as an income return (which is the dividend yield).