markets are in equilibrium, which of the following conditions will exist?
A)Each stock's expected return should equal its realized return as seen by the marginal investor.
B)Each stock's expected return should equal its required return as seen by the marginal investor.
C)All stocks should have the same expected return as seen by the marginal investor.
D)The expected and required returns on stocks and bonds should be equal.
E)All stocks should have the same realized return during the coming year.

Question

Quizplus · Accepted Answer

In an equilibrium market, each stock's expected return should equal its required return as seen by the marginal investor. This is because if a stock's expected return is higher than its required return, investors will buy more of the stock until the expected return decreases to the required return. Conversely, if a stock's expected return is lower than its required return, investors will sell the stock until the expected return increases to the required return. Therefore, in equilibrium, all stocks should have the same required return as seen by the marginal investor.

Markets Are in Equilibrium, Which of the Following Conditions Will