Question

Over a certain period, large-company stocks had an average return of 12.59 percent, the average risk-free rate was 2.58 percent, and small-company stocks averaged 17.45 percent. What was the risk premium on small-company stocks for this period

Answer 1

The answer is 14.87%

Step-by-step explanation:

Solution

Given that:

A large company stock had an average return of =12.59%

The average risk free rate = 2.58%

A small company stocks average is =17.45

The next step is to find the risk premium on small-company stocks for this period

Thus,

The risk premium on small-company stocks = Average return on small-company stocks - average risk-free rate

So,

Risk premium on small-company stocks = .1745 - 0.258

=0.1487

Therefore the risk premium on small company stocks for the period was 14.87%