Question

Historical returns (1900-2015) suggest that in a year when Treasury bills offered 7.5 the approximate return on portfolio of common stocks should be in the region of:

Answer 1

Answer: 15%

Explanation:

The expected return on stock is expressed as;

Expected Return on Stock  =  Treasury Bill Yield  +  Risk Premium

Historical returns from 1900 - 2015 generally show the risk premium on stock to be 7.6% so;

Expected Return on Stock = 7.5% + 7.6%

= 15.1%

= 15%