Final answer:
The average rate of return on a stock is generally greater than 2% (Option 3) over time, as stocks have historically yielded higher returns than bonds or savings accounts, despite their volatility and associated risks.
Step-by-step explanation:
Over time, the average rate of return on a stock is generally greater than 2%. This is due to the nature of the stock market, where the value of stocks can experience significant growth, although they also come with higher volatility compared to other investment options such as bonds and savings accounts.
Historically, stocks have yielded higher average returns than bonds, and bonds have outpaced savings accounts. For example, the S&P 500, which is a benchmark index for U.S. stocks, had years of notable gains and losses, such as a 26% increase in 2009 following a 37% decline in 2008.
This illustrates the potential for high returns in the stock market. Moreover, it's important to note that investors are willing to take on higher risks with stocks because they expect to earn a higher average return over time. Lastly, data from past decades shows that while dividends from stocks have varied, capital gains have often resulted in substantial returns, pushing the total rate of return well beyond 2%.