Last year, T-bills returned 1 percent while your investment in large-company stocks earned an average of...
Last year, T-bills returned 1 percent while your investment in large-company stocks earned an average of 11 percent. Which one of the following terms refers to the difference between these two rates of return? A. risk premium B. geometric return C. arithmetic D. standard deviation E. variance
Homework Answers
Answer : A. risk premium
Note:
T-bills returns = Risk free Rate of return
The large-company stocks returns = Market return
Risk premium = (Market return - Risk free Rate of return)
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Last year, T-bills returned 1 percent while your investment in
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4 –14.43 6.99
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premium in each year for the large-company stocks versus the
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