Question

The excess return is computed as the: Multiple Choice return on a security minus the inflation rate. risk-free rate plus the inflation rate. risk premium on a risky security minus the risk-free rate. risk-free rate minus the inflation rate. return on a risky security minus the risk-free rate.

Answer 1

Answer: Return on a risky security minus the risk-free rate.

Explanation:

The excess return is known to be the amount of return on a risky asset that exceeds the return that one would have received had they invested in a risk-less asset such as Treasury Bills.

If the return you received on shares was 5% and the return on riskfree assets is 2%, your excess return is 3%.

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