Which of the following best defines a 'distressed asset'?

A 'distressed asset' is best defined as an asset that is underperforming. This characteristic typically indicates that the asset has experienced significant declines in value, financial difficulties, or other adverse conditions that affect its overall performance and marketability. Distressed assets are often sold at a discount, reflecting their lower valuations due to various factors such as operational challenges, market conditions, or financial instability of the owning company.

The other choices do not accurately define distressed assets. High-return assets are the opposite of distressed assets, as they are performing well financially. An asset acquired through acquisition could be distressed or performing well, and thus does not inherently provide a definition. Finally, a fully depreciated asset is one that has reached the end of its useful life in accounting terms, but that does not necessarily mean it is distressed, as it could still hold value or be used effectively. These distinctions highlight why underperformance is the key indicator of a distressed asset.