Risk-Adjusted Rate of Return

An expected or target annual return to the investor that includes a risk-free return that compensates the investor for the use of the funds (recognizing anticipated inflation so as to maintain the real value of those funds), plus a risk premium above the risk-free rate that compensates the investor for the risk that actual returns will deviate from expected. The size of the risk premium varies with the degree of risk associated with the returns. (ASOP No. 19)