Final answer:
The statement is False, as the risk premium is likely to be larger when comparing stocks to U.S. Treasury bills than when comparing them to 10-year U.S. Treasury bonds, since bills are considered to be less risky due to their shorter maturity.
Step-by-step explanation:
The statement that a risk premium generated by comparing stocks to 10-year U.S. Treasury bonds will be smaller than a risk premium generated by comparing stocks to U.S. Treasury bills is generally False. The risk premium is the additional return an investor demands for holding a riskier asset compared to a risk-free asset. When comparing stocks to Treasury bonds, typically considered to be less risky than stocks, the risk premium reflects the additional potential return expected from stocks due to their higher volatility and risk relative to bonds. However, 10-year U.S. Treasury bonds are considered to be less risky than U.S. Treasury bills, which have a shorter maturity and hence are seen as closer in risk to cash. Therefore, the risk premium is likely to be larger when comparing stocks to Treasury bills than when comparing stocks to the more stable 10-year Treasury bonds, as the latter are seen as a safer investment and closer in risk profile to stocks.