The returns on small company stocks are 10.7%, U.S. Treasury bill offer a 1.3% return and a bank savings account offers an 0.8% return. What is the risk premium on small company stocks?
A) 10.7%
B) 9.4%
C) 12.0%
D) 9.9%

Question

Quizplus · Accepted Answer

The risk premium on small company stocks is calculated by subtracting the risk-free rate from the return on the stocks. The U.S. Treasury bill is often considered the risk-free rate, so the risk premium is 10.7% - 1.3% = 9.4%.

The Returns on Small Company Stocks Are 10