what will bring the excess return back in line with equilibrium is a decrease in the expected returns on the asset
Here in the particular question, we are interested in knowing what will bring the return back in line with equilibrium if a financial asset has an expected return greater than what is necessary to compensate for its risk.
What we need to understand is that If the expected return generated by a financial asset is greater than what is required for compensating the asset's risk, the demand for the financial asset will start rising exponentially such that the price of the financial asset will increase
This in subsequently cause a decrease in the expected returns generated by the financial asset. This process will continue till the excess return being generated by the asset stops to exist and the asset's price becomes at par with the asset's risk-return profile
hi there, i would say your answer is:
b. there is a fixed quantity of resources and technology available.
hope that : )
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