For a Stock to Be in Equilibrium, That Is, for There

question 25

Multiple Choice

For a stock to be in equilibrium, that is, for there to be no long-term pressure for its price to depart from its current level, then

• A) the expected future return must be less than the most recent past realized return.
• B) The past realized return must be equal to the expected return during the same period.
• C) the required return must equal the realized return in all periods.
• D) the expected return must be equal to both the required future return and the past realized return.
• E) the expected future returns must be equal to the required return.

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Definitions:

Stackelberg Leader

A firm in a duopoly that maximizes its profit by making the first move and setting its output level, anticipating the response of the follower firm.

Maximize Profits

The process of making the most favorable decisions to achieve the highest possible earnings after expenses.

Conjectural Variation

An expectation of how rival firms will react to a change in the quantity and price of goods a firm markets.

Demand Function

A mathematical formula that describes the relationship between the quantity demanded of a good and its various determinants such as price, income, and substitute prices.