Table indicates that the average annual rate of return on common stocks over many years has exceeded the return on government bonds in the United States. Why do we observe this pattern?
TABLE Rate of Return on Selected Securities, 1900–2010
Security | Return* |
Common stocks | 11.4% |
Long-term corporate bonds | 5.7 |
Long-term government bonds | 5.2 |
Short-term government bills | 4.0 |
Consumer price index | 3.1 |
*Arithmetic mean annual returns ignoring taxes and assuming reinvestment of all interest and dividend income.
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