Suppose you gathered the following return data on these types of investments over the previous three decades:

Investment Average Return Standard Deviation Large-Company Stocks 14.3% 21.1% Small-Company Stocks 21.2% 35.3% Long-term corporate bonds 9.7% 10.4% Long-term government bonds 7.5% 8% U.S Treasury bills 5.6% 5.2%

During this 30-year period, what was the risk premium on large-company stocks? 6% 7.8% 9.3% 8.7% 6.5%

If you were to plot the distribution of returns for each of these investments, which investment would have the tightest distribution? In other words, which investment would have the most observations near the average and the narrowest distribution curve?

US Treasury Bills Short-term government bonds Long-term government bonds Large-company stocks small-company stocks

Which investment exposes the investor to the greatest chance of negative returns in a given year?

US Treasury Bills Short-term government bonds Long-term government bonds Large-company stocks small-company stocks

What is the probability of observing a return on large-company stocks that is greater than 35.4%? Assume a normal distribution. About 16% About 68% About 32% About 34% About 95%