APPENDIX B
Equilibrium in the Share Market
Conditions for, and the Restoration of, the Equilibrium
Equilibrium in the share market denotes a position when expected rate of return is equal to the required rate of return. The reader may note that the expected rate of return on an ordinary share is a rate that the shareholder expects to receive in the future. On the contrary, the required rate of return on an ordinary share is the rate that the shareholder considers acceptable. As discussed, in Chapter 3, the required rate of return is equal to the sum of the risk-free rate of return and the risk premium. The risk premium is equal to the product of beta (ß) and the difference between the market rate of return and the rate of return on the security ...
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