You own 200 shares of Shapard Resources' preferred stock, which currently sells for $40 per share and pays annual dividends of $3.40 per share. a. What is your expected return? b. If you require an 8% return, given the current price, should you sell or buy more stock?

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Risk and return

Before understanding the concept of Risk and Return in Financial Management, understanding the two-concept Risk and return individually is necessary. 

Capital Asset Pricing Model

Capital asset pricing model, also known as CAPM, shows the relationship between the expected return of the investment and the market at risk. This concept is basically used particularly in the case of stocks or shares. It is also used across finance for pricing assets that have higher risk identity and for evaluating the expected returns for the assets given the risk of those assets and also the cost of capital.