From 1926 to 2005, the Total Annual Returns on Large

question 17

Multiple Choice

From 1926 to 2005, the total annual returns on large company US ordinary shares averaged 12.4%, small company shares averaged 17.5%, long-term government bonds averaged 5.8% and Treasury
Bills averaged 3.8%.What was the average risk premium earned by long-term government bonds
And small company shares respectively during that period of time?

• A)1.8%; 13.3%
• B)2.0%; 13.7%
• C)4.4%; 11.9%
• D)9.5%; 1.8%
• E)None of the above.

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Definitions:

Borrowing Rate

The interest rate that a financial institution charges a borrower for the use of money.

Principal

The original sum of money borrowed in a loan, or the amount of the loan that has yet to be repaid, excluding interest.

Annual Payments

Regular payments made yearly, often referring to the interest or dividends paid by bonds or stocks.

Compounded Annually

This term refers to the process of calculating interest on both the initial principal and the accumulated interest from previous periods, with the compounding occurring once per year.