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

question 14

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

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Definitions:

Discontinued Operations

Parts of a company's core business or product lines that have been sold, disposed of, or terminated, no longer continuing its previous course of operation.

Extraordinary Items

Events and transactions that are distinguished by their unusual nature and by the infrequency of their occurrence.

Cumulative Effect

The total impact of a change in accounting principle on the net income reported in prior periods, if that change had been applied retrospectively.

Accounting Principle

A fundamental guideline or rule that underpins the financial reporting and accounting practices.