EXAMPLE $15$

Return Calculaticns

An analyst observes the following historic asset class geometric returns:

$\backslash$table$[[$Exhibit $17$: Asset Class Geometric Return,$],[$Asset Class,Geometric Return $(\%)],[$Equities$,8\mathrm{.}0],[$Corporate Bonds,$6\mathrm{.}5],[$Treasury bills,$2\mathrm{.}5],[$Inflation$,2\mathrm{.}1]]$

The risk premium for equities is closest to A$.5\mathrm{.}4\%$ B$.5\mathrm{.}5\%$ C$.5\mathrm{.}6\%$

Please explain the reason of your formula choice.