For a particular investment the ___ is the return on a risk free investment that makes the investor indifferent between the risky and risk free investment.

Question

Quizplus · Accepted Answer

The certainty equivalent return is the return on a risk-free investment that an investor would need to make him or her indifferent between the risky investment and the risk-free investment. This takes into account the investor's risk aversion and the expected return of the risky investment. The risk premium is the extra return an investor demands for taking on additional risk, adjusted volatility is a measure of how much a security's price fluctuates, and the prime rate is the interest rate that banks charge their most creditworthy customers. None of these terms directly relate to the concept of a certainty equivalent return.

For a Particular Investment the ___ Is the Return on a Risk