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,
B) The past realized rate of return must be equal to the expected rate of return; that is
C) The required rate of return must equal the realized rate of return; that is
D) All three of the above statements must hold for equilibrium to exist; that is,
E) None of the above statements are correct.

Question

Quizplus · Accepted Answer

The expected rate of return must be equal to the required rate of return for markets to be in equilibrium. This means that investors are satisfied with the returns they are getting on their investments and there is no strong pressure for prices to depart from their current levels. B and C are not correct as they focus on past or realized rates of return, which may not be indicative of future returns or investor expectations. D is not correct as all three statements do not need to hold for equilibrium to exist.

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