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Suppose a Stock Has the Same Expected Rate of Return

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Essay

Suppose a stock has the same expected rate of return as a bank account. Explain why this is not an equilibrium situation.


Definitions:

Net Price Method

An accounting method that records purchases at the net price, after deducting any discounts, rather than recording them at the gross price.

Catalog Price

The listed price of goods or services in a catalog, before any discounts or adjustments.

Perpetual Inventory System

An inventory accounting system that records the sale or purchase of inventory immediately through the use of computerized point-of-sale systems and enterprise asset management software.

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