The excess return earned by a risky asset,for example with a beta of 1.4,over that earned by a risk-free asset is referred to as a:
A) market risk premium.
B) risk premium.
C) systematic return.
D) total return.
E) real rate of return.
F) None of the above.

Question

Quizplus · Accepted Answer

The excess return earned by a risky asset over that earned by a risk-free asset is called risk premium. The market risk premium, on the other hand, is the return in excess of the risk-free rate that investors require to invest in the overall stock market. Systematic return refers to the portion of an investment's return that is related to general market movement and cannot be diversified away, while total return is the overall return earned by an investment, including both capital appreciation and income. The real rate of return is the return adjusted for inflation.

The Excess Return Earned by a Risky Asset,for Example with a Beta