Assume that last year T-bills returned 2.8 percent while your investment in large-company stocks earned an average of 7.6 percent. Which one of the following terms refers to the difference between these two rates of return?
A) Risk premium
B) Geometric average return
C) Arithmetic average return
D) Standard deviation
E) Variance

Question

Quizplus · Accepted Answer

The difference between the rate of return on T-bills and large-company stocks is referred to as the risk premium. It is the additional return that investors require to compensate for the additional risk associated with investing in stocks compared to T-bills.

Assume That Last Year T-Bills Returned 2