For markets to be in equilibrium, that is, for there to be no strong pressure for prices to depart from their current levels,
A) The expected rate of return must be equal to the required rate of return; that is, rˆ = r.
B) The past realized rate of return must be equal to the expected future rate of return; that is, r = rˆ .
C) The required rate of return must equal the past realized rate of return; that is, r = r .
D) All three of the above statements must hold for equilibrium to exist; that is rˆ = r = r .

Question

Quizplus · Accepted Answer

In equilibrium, the expected rate of return must be equal to the required rate of return, as this ensures that there is no strong pressure for prices to depart from their current levels. The other choices are not applicable or incorrect.

For Markets to Be in Equilibrium, That Is, for There