Assume that over the last several decades,the total annual returns on large-company common stocks averaged 12.1 percent,small-company stocks averaged 16.5 percent,long-term government bonds averaged 6 percent,and U.S.T-bills averaged 3.4 percent.What was the average excess return earned by long-term government bonds,and small-company stocks respectively?
A)1.8 percent; 13.3 percent
B)2.6 percent; 13.1 percent
C)2.6 percent; 4.4 percent
D)1.9 percent; 5.1 percent
E)4.4 percent; 2.6 percent

Question

Quizplus · Accepted Answer

The average excess return earned by long-term government bonds is calculated as (average long-term government bond return - average T-bill return) = (6%-3.4%) = 2.6%.
The average excess return earned by small-company stocks is calculated as (average small-company stock return - average large-company stock return) = (16.5%-12.1%) = 4.4%.
Therefore, the correct option is B.

Assume That Over the Last Several Decades,the Total Annual Returns