Question

In a year in which common stocks offered an average return of 12% and Treasury bills offered 3%. The risk premium for common stocks was:

Group of answer choices

3%.

1%.

12%.

9%.

Answer 1

The risk premium for common stocks is the difference between the average return of common stocks and the risk-free rate of return, which is the return on Treasury bills. Therefore, the risk premium for common stocks in this year is:

12% - 3% = 9%

So the answer is 9%.

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