Final answer:
U.S. Treasury bills are most likely to have the lowest risk premium in the future due to the historically lower interest rates they offer, indicating lower risk compared to other investment options such as long-term government and corporate bonds or stocks.
Step-by-step explanation:
The investment option that is most likely to have the lowest risk premium based on historical investment returns is U.S. Treasury bills. This is because the U.S. government is considered to be an extremely safe borrower.
When the U.S. government issues Treasury bonds, it pays a relatively low rate of interest compared to other investment options. In contrast, firms that issue long-term corporate bonds are considered riskier than the government and therefore have to pay higher interest rates to attract investors.
Historically, Treasury bonds typically pay more than bank accounts, and corporate bonds typically pay a higher interest rate than Treasury bonds.
However, U.S. Treasury bills are short-term securities with maturities of one year or less and typically carry the lowest interest rates among government securities, reflecting their high liquidity and perceived lower risk compared to other investments like long-term government bonds, long-term corporate bonds, small-company stocks, or large-company stocks.
Therefore, between long-term government bonds, long-term corporate bonds, U.S. Treasury bills, small-company stocks, and large-company stocks—U.S. Treasury bills are most apt to have the lowest risk premium going forward.