Question

Security A and Security B have similar risks. However, Security A has a higher rate of return than Security B. The return on Security A minus the return on Security B is referred to as which one of the following? A) market return B) abnormal return C) deviated return D) excess return E) real return

Answer 1

Answer:

The correct answer to the following question is option D) Excess return.

Explanation:

The rate of return can be defined as the gain or loss( net) that a company or business gets on the investment over a defined period of time. Where for taking out the rate of return , the formula which can be used is -

Current value - Initial value / Initial value  x 100

The rate of return helps in evaluating what is the investment growth rate of a company on a year to year basis and what are changes in revenues that have occurred.

When two security's have similar risk and if one security has higher return than other , then the difference between them would be called excess return.