The market for a stock is said to be in equilibrium when the _____.
A)expected return on the stock is equal to its required return
B)expected return on the stock is equal to the risk-free rate of return
C)expected return on the stock is equal to the market risk premium
D)expected return on the stock is equal to the market return
E)expected return on the stock is equal to its historical return

Question

The market for a stock is said to be in equilibrium when the _____. 
A)expected return on the stock is equal to its required return
B)expected return on the stock is equal to the risk-free rate of return
C)expected return on the stock is equal to the market risk premium
D)expected return on the stock is equal to the market return
E)expected return on the stock is equal to its historical return

Quizplus · Accepted Answer

Equilibrium in the stock market means that the expected return on the stock is equal to its required return. In other words, the price of the stock is such that investors are willing to buy and sell it at its fair value. This happens when the market efficiently incorporates all available information, and there is no reason to believe that the stock is overvalued or undervalued.

The Market for a Stock Is Said to Be in Equilibrium