The market for a stock is said to be in equilibrium when the _____.
A) expected return on the stock is equal to its required return
B) expected return on the stock is equal to the risk-free rate
C) expected return on the stock is equal to the market risk premium
D) expected return on the stock is equal to the market return
E) expected return on the stock is equal to its historical return

Question

Quizplus · Accepted Answer

Equilibrium in the market for a stock occurs when the expected return on the stock is equal to its required return. This means that investors are willing to buy and sell the stock at its current price, indicating that the market is in a state of balance with no excess demand or supply. In other words, the stock is fairly valued and its price is not expected to significantly fluctuate in the near future.

The Market for a Stock Is Said to Be in Equilibrium