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

Quizplus · Accepted Answer

Equilibrium in markets occurs when the expected rate of return is equal to the required rate of return (r). Therefore, statement C is correct. Statements A and B are incorrect because they refer to past realized rate of return, which is not necessarily relevant to the current market equilibrium. Statement D is partially correct but does not add any new insight beyond statement C. Statement E is incorrect as at least one of the statements is correct.

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