# Question

a. Suppose that, over the long run, the risk-premium on stocks relative to Treasury bills has been 7.6 % in the United States. Suppose also that the current Treasury bill yield is 1.5%, but the historical average return on Treasury bills is 4.1%. Estimate the expected return on stocks and explain how and why you arrived at your answer.

b. Suppose that, over the long run, the risk-premium on stocks relative to Treasury bonds has been 6.5%. The current Treasury bond yield is 4.5%, but the historical return on T-bonds is 5.2%. Estimate the expected return on stocks and explain how and why you arrived at your answer.

c. Compare your answers above and explain any differences.

b. Suppose that, over the long run, the risk-premium on stocks relative to Treasury bonds has been 6.5%. The current Treasury bond yield is 4.5%, but the historical return on T-bonds is 5.2%. Estimate the expected return on stocks and explain how and why you arrived at your answer.

c. Compare your answers above and explain any differences.

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