From a historical perspective (1900-2007),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%?
A) 8.3%
B) 12.3%
C) 14.9%
D) 19.3%

Question

Quizplus · Accepted Answer

Historically, the equity risk premium, which is the excess return that investing in the stock market provides over a risk-free rate, has averaged around 6-7%. Given a 7.5% return on Treasury bills, adding the average equity risk premium would result in an expected return on stocks of approximately 14.9%.

From a Historical Perspective (1900-2007),what Would You Expect to Be