Under risk neutrality,the expected return on an asset will equal:
A)the market risk premium.
B)the market rate of return.
C)zero.
D)the risk-free rate of interest.
E)the asset beta times the market risk premium.

Question

Quizplus · Accepted Answer

Under risk neutrality, investors do not require a risk premium for taking on risk, so the expected return on an asset would equal the risk-free rate of interest. This is because, in a risk-neutral world, investors are indifferent to risk and thus only require the return that is guaranteed without taking on additional risk, which is the risk-free rate.

Under Risk Neutrality,the Expected Return on an Asset Will Equal