From a historical perspective (1926-2014), what would you expect to be the approximate return on a diversified portfolio of common stocks in a year that Treasury bills offered 7.5 percent?
A)8.5 percent
B)12.5 percent
C)14.5 percent
D)19.5 percent

Question

Quizplus · Accepted Answer

Historically, the equity risk premium (the additional return expected from investing in stocks over risk-free Treasury bills) has been around 7%. Adding this to the 7.5% return on Treasury bills gives an expected return of approximately 14.5% for a diversified portfolio of common stocks.

From a Historical Perspective (1926-2014), What Would You Expect to Be