yalo

expected return=return from DDM or some such model.
required return=CAPM return.

What is return used for? Discounting to arrive at PV(Cash Flows)=Price.

If Return increases -> PV Decreases - so Price reduces. (It gets underpriced).

Case 1:
Shankar’s forecasted return for MSS: 11% <-- Expected Return
Shankar’s forecasted beta for MSS: 1.25
Expected return on the stock market index: 12%
Risk-free rate: 4%

From CAPM -> Required Return=14% <-- Required Return.

If you valued Cash flows at the Expected Return of 11% -> your Price will be HIGHER -- the security will be OVERPRICED --> so SELL.

Case 2: According to the capital asset pricing model (CAPM), if the expected return on an asset is too high given its beta, investors will:

Expected Return is too HIGH. So PRICE will be TOO LOW.. SO BUY.
When you BUY - Price would increase (due to demand for the asset). When Price increases -- Return would reduce....

CP