The equity-premium puzzle refers to the surprising result that O stock prices are inversely related to interest rates. O equity prices are much too high when compared with the fundamental value of the stock market, as determined by using the present-value formula. people will not pay to avoid risk in everyday situations, but when it comes to the stock market, people are willing to give up large potential returns to stocks in order to buy safer Treasury securities. O the transactions costs for buying stocks may be as high as 5 percent of the total value of those stocks, greatly reducing the net returns to stocks