Assume that during a 7-year period, inflation averaged 2.8 percent, U.S. Treasury bill yields averaged 3.3 percent, and long-term government bond yields averaged 5.9 percent. What was the average rate of return on long-term corporate bonds if they commanded a risk premium of .2 percent more than the long-term government bonds?

Answers:

1. 9.4%

2. 8.9%

3. 9.2%

4. 5.7%

5. 6.1%