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

Answer 1

Answer:

C) The expected rate of return must be equal to the required rate of return; that is, r~ = r.

Explanation:

In order for markets to be in equilibrium, each stock's expected rate of return should equal the investors' required rate of return.

If the investors' required rate of return is higher than the stock's expected rate of return, then the price will be pressured downwards. If the investors' required rate of return i slower than the stock's rate of return, then the price will be pressured upwards.