For markets to be in equilibrium, that is, for there to be no strong pressure for prices to depart from their current levels,

Question

Quizplus · Accepted Answer

For markets to be in equilibrium, the expected rate of return must be equal to the required rate of return. This means that investors are willing to pay for an asset at its current price, because they expect to receive a return on their investment that is in line with their required rate of return. If the expected return is lower than the required rate of return, investors will not be willing to buy the asset at its current price, and if the expected return is higher than the required rate of return, investors will bid up the price of the asset. The past realized rate of return may be informative for investors, but it is not a requirement for equilibrium to exist. Therefore, choices A and B are incorrect. Choice D is incorrect because it is redundant, as it simply lists all of the statements in the question. Choice E is incorrect because at least one of the statements is correct.

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