If markets are in equilibrium, which of the following conditions will exist?
A) Each stock's expected return should equal its required return as seen by the marginal investor.
B) All stocks should have the same expected return as seen by the marginal investor.
C) The expected and required returns on stocks and bonds should be equal.
D) All stocks should have the same realized return during the coming year.
E) Each stock's expected return should equal its realized return as seen by the marginal investor.

Question

Quizplus · Accepted Answer

In an equilibrium market, each stock's expected return should equal its required return as seen by the marginal investor. This means that investors are willing to buy and hold the stock at its current price, and there is no excess demand or supply that would cause the price to change. Therefore, the expected return on the stock would be in line with the required return for the investor to hold the stock. Choices B, C, D, and E are incorrect because they do not fully capture the concept of market equilibrium.

If Markets Are in Equilibrium, Which of the Following Conditions