In Chapter 12, we looked at some long-term data on returns in both the stock and the bond market. This data was from Jeremy Siegels books, The Future for Investors and Stocks for the Long Run. Siegel tells us that, over the period from 1802 2005, the long run average real return in the US equity market is 6.8% and it is 3.5% in the bond market. Based on Siegels data, answer the following three questions. Based on Siegels data, with long (30 year) holding periods, which of the following asset classes has the smallest risk, as measured by standard deviation?

• It is impossible to know

• Common stock

• Treasury Bills

• Bonds