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9 January, 10:41

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

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  1. 9 January, 12:52
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    The answer is 14.87%

    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%
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