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

question 5

Multiple Choice

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

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Definitions:

Liabilities

Liabilities represent the financial obligations a company owes to outside parties, such as debt and accounts payable.

Stockholders' Equity

The residual interest in the assets of a corporation after deducting liabilities, indicating the net value owned by the shareholders.

Loan

A sum of money that is borrowed and expected to be paid back with interest by the borrower to the lender.

Accounting Equation

The foundational formula in accounting that states assets equal liabilities plus owners' equity, essentially showing what the company owns is financed by debt and shareholders' equity.