The SML represents a stable stock market equilibrium in which:
A)investors are happy because their expected and required rates of return are at least equal.
B)there is not an excess of buyers or sellers and the market remains where it is.
C)a slight disequilibrium with respect to a particular stock produces market forces that tend to equalize the stock's expected and required returns through changes in its price.
D)All of the above

Question

Quizplus · Accepted Answer

All of the options mentioned above are correct. The SML represents a situation in which investors are satisfied with their expected and required rates of return. The market remains stable because there is no excess of buyers or sellers. Any slight disequilibrium with regard to a specific stock leads to market forces that tend to balance the stock's expected and required returns through fluctuations in its price.

The SML Represents a Stable Stock Market Equilibrium in Which