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 past realized rate of return must be equal to the expected future rate of return; that is, $\overline { \mathrm { r } } = \hat { \mathrm { r } }$ .
B)The required rate of return must equal the past realized rate of return; that is, r = $\overline { \mathbf { r } }$ .
C)The expected rate of return must be equal to the required rate of return; that is, $\hat { r}$ = r.
D)All of the above statements must hold for equilibrium to exist; that is $\hat { r}$ = r = $\overline { \mathbf { r } }$ .
E)None of the above statements is correct.

Question

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 past realized rate of return must be equal to the expected future rate of return; that is, $\overline { \mathrm { r } } = \hat { \mathrm { r } }$ .
B)The required rate of return must equal the past realized rate of return; that is, r = $\overline { \mathbf { r } }$ .
C)The expected rate of return must be equal to the required rate of return; that is, $\hat { r}$ = r.
D)All of the above statements must hold for equilibrium to exist; that is $\hat { r}$  = r = $\overline { \mathbf { r } }$ .
E)None of the above statements is correct.

Quizplus · Accepted Answer

Equilibrium in the market occurs when the expected rate of return is equal to the required rate of return. This means that investors are willing to invest at current prices because they expect to receive the required rate of return on their investment. If the expected rate of return is higher than the required rate of return, investors will demand more of the asset, and prices will rise until the two rates are equal. Conversely, if the expected rate of return is lower than the required rate of return, investors will sell the asset, and prices will fall until the two rates are equal again. Therefore, choice C is the correct statement for the market to be in equilibrium.

For Markets to Be in Equilibrium,that Is,for There to Be r‾=r^\overline { \mathrm { r } } = \hat { \mathrm { r } }r=r^

For Markets to Be in Equilibrium,that Is,for There to Be $\overline { \mathrm { r } } = \hat { \mathrm { r } }$