Over a certain period, large-company stocks had an average return of 12.49 percent, the average risk-free rate was 2.56 percent, and small-company stocks averaged 17.37 percent. What was the risk premium on small-company stocks for this period?

14.81%

Explanation:

Data provided in the question:

Average return on stocks = 12.49% = 0.1249

Average risk-free rate = 2.56% = 0.0256

Small-company stocks averaged = 17.37%

Now,

The Risk premium on small company stocks is

= (Return on small company stocks) - (Risk free rate)

or

Risk premium on small company stocks = 17.37% - 2.56%

or

Risk premium on small company stocks = 14.81%