Which rate of return is the risk-free rate? Why? Securities Nominal Average Annual Returns Standard Deviation of Returns Real Average Annual Returns (*) Risk Premium Large-company stocks 11.7% 20.0% 8.5% 8.0% Small-company stocks 17.4% 33.0% 14.2% 13.7% Corporate bonds 6.2% 8.5% 3.0% 2.5% Government bonds 5.2% 5.7% 2.0% 1.5% U.S. Treasury bills 3.7% 3.1% 0.5% 0.0% Inflation 3.2% 4.3% (*) The real return equals the nominal returns less the inflation rate of 3.2 percent.

Which rate of return in the table is the risk-free rate?(Select the best choice below.)

A.

11.7%

B.

3.7%

C.

6.2%

D.

5.2%

E.

17.4%