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29 April, 03:49

Over a certain period, large-company stocks had an average return of 12.14 percent, the average risk-free rate was 2.49 percent, and small-company stocks averaged 17.09 percent. What was the risk premium on small-company stocks for this period?

a. 9.93%

b. 19.39%

c. 14.81%

d. 11.85%

e. 4.88%

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Answers (1)
  1. 29 April, 04:25
    0
    14.6 percent

    Explanation:

    Data provided in the question

    The average return of large-company stock = 12.14 percent

    The average risk-free rate of return = 2.49 percent

    The average return of small-company stock = 17.09 percent

    By considering the above information, the risk premium is

    = Average return of small-company stock - Average risk-free rate of return

    = 17.09 percent - 2.49 percent

    = 14.6 percent

    This is the answer but the same is not provided in the given options

    We simply deduct the risk-free rate of return from the market return so that the risk premium could come
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