The expected return is usually ________ the baseline risk-free rate of return that we demand to compensate for inflation and the time value of money.
A)lower than
B)similar to
C)higher than
D)none of the above

Question

Quizplus · Accepted Answer

The expected return should be higher than the baseline risk-free rate of return because we are taking on additional risk in order to potentially earn a higher return. If the expected return was lower than the risk-free rate, there would be no incentive to take on the additional risk.

The Expected Return Is Usually ________ the Baseline Risk-Free Rate