The SML Represents a State of Stable Equilibrium at Which

question 195

Essay

The SML represents a state of stable equilibrium at which expected and required returns are at least equal. Suppose a stock is displaced so that its expected return is below its required return. Describe the market forces that tend to push the returns back together.

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Definitions:

Biofuels

Fuels that are derived from biological sources, such as plants and algae, as an alternative to fossil fuels.

Urban Sprawl

The uncontrolled expansion of urban areas into the surrounding countryside, often characterized by low-density residential housing, single-use zoning, and increased reliance on the private automobile.

Urban Renewal

A program of land redevelopment in areas of moderate to high density urban land use, focusing on the rehabilitation or replacement of buildings and infrastructure.

Car And Oil Companies

Businesses that manufacture motor vehicles and those involved in the production, refinement, and distribution of oil, respectively.