Question: When interest rates are high, investors may shun stocks because they can get high returns with less risk. The figure below shows the annual return on U.S. common stocks for the years 1950 to 2000 against the returns on Treasury bills for the same years. (The interest rate paid by Treasury bills is a measure of how high interest rates were that year.)

(a) (5pts) Approximately what were the highest and lowest annual percent returns on stocks during this period?

(b) (5pts) What were the highest and lowest returns for Treasury bills?

(c) (5pts) Describe the pattern you see. Are high interest rates bad for stocks? Is the relationship between interest rates and stock returns strong or weak?