Final answer:
The 'rate of return' indicates the profit or loss on an investment, accounting for both capital gains and interest relative to the initial investment amount. It encompasses both expected and actual outcomes, influenced by various types of investment risk.
Step-by-step explanation:
The phrase 'rate of return' describes the profit or loss on an investment relative to the amount invested (C). Specifically, it is the total rate of return, including capital gains and interest paid on an investment at the end of a time period. This can refer to the expected rate of return, which is an average figure anticipated over a certain period, or the actual rate of return, which is the real outcome at the end of the investment period. Risk plays a significant role in investments, as it measures the uncertainty of profitability. It includes default risk, which is the chance that the borrower will not pay back a loan or bond, and interest rate risk, which is the danger of rates rising after making a fixed-rate investment.