Figure plots a price-to-value ratio (P/V) for the Dow Jones Industrial Average (DJIA) from 1979 to 1999.

Question:

Figure plots a price-to-value ratio (P/V) for the Dow Jones Industrial Average (DJIA) from 1979 to 1999. A P/V ratio is a metric that compares the market price (P) to an estimate of intrinsic value (V). The intrinsic value in the figure is based on techniques that will be discussed in this book. But how it is calculated is not important for the following questions:
a. Up to 1996, the P/V ratio fluctuated around 1.0. What do you make of this pattern?
b. If you had purchased the Dow 30 each time the P/V ratio fell below 0.8 and had sold them each time the P/V ratio rose above 1.2, would your investment strategy have performed well?
c. What interpretation do you put on the continuing upward movement of the P/V ratio after1995?

Stocks
Stocks or shares are generally equity instruments that provide the largest source of raising funds in any public or private listed company's. The instruments are issued on a stock exchange from where a large number of general public who are willing...