Final answer:
The future anticipated return on a risky asset is known as the expected rate of return, influenced by risks like default risk and interest rate risk, and may differ significantly from the actual rate of return.
Step-by-step explanation:
The return on a risky asset that is anticipated in the future is called the expected rate of return. This is the average return that an investor forecasts they will earn from an investment. The expected rate of return is calculated as a percentage, considering future interest payments, capital gains, or increased profitability over a certain period, often spanning years.
Risk refers to the uncertainty associated with the investment's future profitability. Specific types of risk include default risk, which is the possibility of the borrower failing to repay a loan or bond, and interest rate risk, the threat of interest rates rising after a long-term bond has been purchased. A high-risk investment has a variable range of potential payoffs, while a low-risk investment generally yields returns close to the expected rate year after year.
Finally, the actual rate of return measures the total return on an investment, encapsulating capital gains and interest received at the end of a specific period. It's crucial to grasp the distinctions between these concepts to make informed decisions in financial markets.