Nominal return is best described as?

• A. Interest earned on a bank deposit
• B. Return after inflation adjustment
• C. Real purchasing power
• D. The risk premium

Answer: (D)

Nominal return is the return measured in current monetary units without stripping out inflation. It represents the money you actually receive, including any compensation for taking on risk when the asset is not risk-free. In many frameworks, the nominal return on a risky asset can be viewed as the sum of the risk-free rate and a risk premium—the extra return investors require to bear uncertainty. So describing nominal return as encompassing the risk premium makes sense because the risk premium is the component that elevates the total nominal return above what a risk-free investment would offer. The other options describe either a specific source of nominal return (like interest on a bank deposit), or concepts that relate to inflation-adjusted or purchasing power (return after inflation, real purchasing power), which aren’t the nominal return itself.