Answer to Question #1112 in Finance for Joel Smith
For the stock market to be in equilibrium, that is, for there to be no strong pressure for prices to depart from their current levels,
(Points : 5)
Expected future returns must be equal to required returns ( = r).
The past realized return must be equal to the expected future return ( = ).
The required return must equal the realized return (r = ).
The expected return must be equal to both the required future return and the past realized return (= r = ).
If the expected future return is less than the most recent past realized return, then stocks are most likely to decline.
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