The fact that over the long run the return on common stocks has been higher than that on long-term U.S. Treasury bonds is partially explained by the fact that:
A) A lot more money is invested in common stocks than U.S. Treasury bonds.
B) There are regulations on the interest rates U.S. Treasury bonds can offer.
C) The risk premium is higher on common stocks.
D) Risk-averse investors buy more common stock.

Question

Quizplus · Accepted Answer

The higher return on common stocks as compared to long-term U.S. Treasury bonds can be attributed to the higher risk premium associated with common stocks. Common stocks are generally considered riskier investments than bonds, and investors demand a higher return to compensate for that risk. This risk premium is a major factor behind the higher returns on common stocks observed over the long run. The other options (A, B, and D) do not adequately explain the higher return on common stocks.

The Fact That Over the Long Run the Return on Common