When the market for an asset is in equilibrium, the expected rate of return on the asset is equal to the ____________.
A) risk-free rate
B) marginal investor's required rate of return
C) historical cost of capital
D) perpetual capitalization rate

Question

Quizplus · Accepted Answer

In equilibrium, the price of the asset will adjust until the expected rate of return on the asset is equal to the marginal investor's required rate of return. This is because investors will continue to buy or sell the asset until its price reaches a level where the expected return matches their required return. The risk-free rate and historical cost of capital may be factors that investors consider when determining their required rate of return, but they are not necessarily equal to the expected rate of return in equilibrium. The perpetual capitalization rate is a concept used in real estate valuation and is not directly related to the expected rate of return on an asset in equilibrium.

When the Market for an Asset Is in Equilibrium, the Expected