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

question 2

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, rˆ = r.
• B) The past realized rate of return must be equal to the expected future rate of return; that is, r = rˆ .
• C) The required rate of return must equal the past realized rate of return; that is, r = r .
• D) All three of the above statements must hold for equilibrium to exist; that is rˆ = r = r .

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