Question

Last year, T-bills returned 2 percent while your investment in large-company stocks earned an average of 5 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

Answer 1

A. risk premium

Step-by-step explanation:

Based on the information provided within the question it can be said that the term being mentioned is risk premium. This term refers to the difference or excess of a the rate of return that a specific investment is expected to return, also seen as a type of compensation for investors who decide to take on the extra risk associated with this investment.