Which one of the following will automatically occur if all investors are rational?
A)All stock prices will be equal.
B)Equivalent risk assets will have equal expected rates of return.
C)All investors will earn the market rate of return.
D)All investors will earn the same rate of return.
E)The riskier an asset, the higher its market price will be.

Question

Quizplus · Accepted Answer

If all investors are rational, they will demand the same expected rate of return for assets with equivalent risk. This will result in equivalent risk assets having equal expected rates of return. However, stock prices will not necessarily be equal, and there may still be differences in individual investor rates of return depending on their investment choices. The market rate of return may also not be earned by all investors, as some may outperform or underperform the market. The price of an asset is not solely determined by its level of risk, but also by supply and demand factors.

Which One of the Following Will Automatically Occur If All