question archive The minimum rate of return necessary to attract an investor to purchase or hold a security is referred to as the stock's beta investor's risk premium investor's required rate of return risk-free rate
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The minimum rate of return necessary to attract an investor to purchase or hold a security is referred to as the
stock's beta
investor's risk premium
investor's required rate of return
risk-free rate
Answer:
Stock Beta: it can't be the solution as the beta represent the correlation of the variance between the security and the market.
Investor risk premium: It is the return of the market expected over and above the risk free rate. Its is the rate equivalent to the risk taken by the investor by investing the particular security the is influenced by the Beta times the Market Movements/Variance. It is the return that investor expect but not the whole picture.
Risk free rate: it is the minimum return that investor expects when investing in any investment but again not the whole picture.
So, the what is the return that investor expects? well the answer is pretty simple. Each investor expects the return equivalent to the risk the he is taking while investing into the security. Risk associated in the security :
1. Market Risk
2. Credit Risk
3. Liquidity Risk
Now each risk as to be accounted for while expecting a return, as investor should be compensated for risk that he is taking. So a model should be capable to consider these risk to formulate the required return. That is done by the Various model that gives the result: "Required Rate of Return"