The average annual return on the S&P 500 Index from 1986 to 1995 was 17.6 percent. The average annual T-bill yield during the same period was 9.8 percent. What was the market risk premium during these ten years?
A) 8.2%
B) 7.8%
C) 8.8%
D) 9.8%

Question

Quizplus · Accepted Answer

The market risk premium is the difference between the return on the market (represented by the S&P 500 Index) and the risk-free rate (represented by the T-bill yield). Thus, the market risk premium for the period 1986 to 1995 was 17.6% - 9.8% = 7.8%. Therefore, the correct choice is B.

The Average Annual Return on the S&P 500 Index from 1986