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a. Here are the average rates of return for common stocks and Treasury billis for four different periods. What was the risk premium on stock for each of these periods?
1900-1924 1925-1949 1950-1974 1975-2010
Stocks 9.50% 10.20% 11.10% 13.70%
Treasury bills 5.10% 1.10% 3.50% 5.60%
b. What securities do the historical records show bond performances are typically against?
Even though no final conclusion is currently warranted, a number of research papers, including those of Fama and French, have argued that:
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