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

question 73

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

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Definitions:

Mutually Exclusive

A condition where the occurrence of one event precludes the occurrence of another in decision making or statistical probability.

Discount Rate

The rate applied in DCF assessment to compute the present worth of imminent cash flows.

Internal Rate

Short for Internal Rate of Return (IRR), a financial metric used to estimate the profitability of potential investments by calculating the rate of return at which net present value of all cash flows (both positive and negative) from a project equals zero.

Profitability Index

A capital budgeting tool that measures the ratio of the present value of future cash flows from an investment to the investment's initial cost.