Over the past ten years, large-company stocks have returned an average of 8.7 percent annually, long-term corporate bonds have earned 4.1 percent annually, and U.S. Treasury bills have returned 2.5 percent annually. How much additional risk premium would you have earned if you had invested in large-company stocks rather than long-term corporate bonds over those ten years?
A)1.7%
B)3.7%
C)4.2%
D)4.6%
E)6.4%

Question

Quizplus · Accepted Answer

The risk premium is calculated by subtracting the return on long-term corporate bonds from the return on large-company stocks. Thus, 8.7% - 4.1% = 4.6%.

Over the Past Ten Years, Large-Company Stocks Have Returned an Average