Asked by Phyllisa Starks on May 12, 2024
Verified
Over the 1970-2005 period, the risk premium on small stocks has averaged ________ per year.
A) 0.0%
B) 1.95%
C) 2.35%
D) 7.53%
E) 14.16%
Risk Premium
The extra return above the risk-free rate that investors require as compensation for the risk of investing in a risky asset.
Small Stocks
Shares of companies with a smaller market capitalization, often considered more volatile but with potential for high returns.
Period
A length of time during which a sequence of events or phenomena occurs or completes its cycle.
- Acquire the ability to determine and compute the risk premium across different investment categories.
Verified Answer
LP
Leticia PerezMay 15, 2024
Final Answer :
D
Explanation :
Over the 1970-2005 period, the risk premium on small stocks has averaged 7.53% per year. This reflects the additional return investors demanded for taking on the greater risk associated with investing in small-cap stocks compared to more stable, large-cap stocks.
Learning Objectives
- Acquire the ability to determine and compute the risk premium across different investment categories.