The excess return is computed as the:
A) return on a security minus the inflation rate.
B) return on a risky security minus the risk-free rate.
C) risk premium on a risky security minus the risk-free rate.
D) risk-free rate plus the inflation rate.
E) risk-free rate minus the inflation rate.

Question

Quizplus · Accepted Answer

The excess return is the return on a risky security minus the risk-free rate. This is because the risk-free rate represents the minimum expected return that an investor can receive without taking any risk. Therefore, any return above the risk-free rate can be attributed to the additional risk taken by the investor in the form of holding a risky security.

The Excess Return Is Computed as The