An analyst observes the following historic asset class geometric returns: 

1. The real rate of return for equities is closest to:

A. 5.4 percent.

B. 5.8 percent.

C. 5.9 percent.

2. The real rate of return for corporate bonds is closest to: 

A. 4.3 percent.

B. 4.4 percent.

C. 4.5 percent.

3. The risk premium for equities is closest to:

A. 5.4 percent.

B. 5.5 percent.

C. 5.6 percent.

4. The risk premium for corporate bonds is closest to:

A. 3.5 percent.

B. 3.9 percent.

C. 4.0 percent.

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Exhibit 17: Asset Class Geometric Return Asset Class Equities Corporate Bonds Treasury bills Inflation Geometric Return (%) 8.0 6.5 2.5 2.1