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?
a. 14.93%.
b. 11.94%.
c. 10.09%.
d. 4.84%.
e. 20.13%.
The risk premium on small-company stocks for this period = 17.45% - 2.58% = 14.87%. When there is risk, the risk should be compensated with risk premium.
