For a stock to be in equilibrium, two conditions are necessary: (1)The stock's market price must equal its intrinsic value as seen by the marginal investor and (2)the expected return as seen by the marginal investor must equal this investor's required return.

Question

Quizplus · Accepted Answer

These are the two necessary conditions for a stock to be in equilibrium according to the theory of efficient markets. If either of these conditions is not met, the stock is said to be mispriced and may offer an opportunity for investors to buy or sell for a profit.

For a Stock to Be in Equilibrium, Two Conditions Are