Question

7.You invested in long-term corporate bonds and earned 6.1 percent. During that same time period, large-company stocks returned 12.6 percent, long-term government bonds returned 5.7 percent, U.S. Treasury bills returned 4.2 percent, and inflation averaged 3.8 percent. What average risk premium did you earn

Answer 1

Answer: 1.9%

Step-by-step explanation:

The risk premium is the return that an investment offers over the risk free rate in the market.

The risk free rate is the return on the U.S. Treasury bill in the same period:

Average risk premium = Return on long term corporate bond - Return on U.S. T-bill

= 6.1% - 4.2%

= 1.9%