The expected rate of return from an investment is
A) the rate that compensates for time preference only.
B) the rate that compensates for risk only.
C) the rate that compensates for time preference plus the rate that compensates for risk.
D) the rate that compensates for time preference minus the rate that compensates for risk.

Question

Quizplus · Accepted Answer

The expected rate of return from an investment comprises two components: the compensation for time preference (the time value of money that reflects the fact that people prefer to receive money sooner rather than later), and the compensation for risk (the additional return that investors require for taking on risk). Therefore, the expected rate of return is the sum of these two components.

The Expected Rate of Return from an Investment Is