1. What adjustments are made to earnings in determining P/10-year MA(E)?

2. Assume P/10-year MA(E) reached an all-time high of 42.5 in 2000. Use the regression results in Exhibit 11-15 to determine predicted real price growth for the time period 2000–2009.

Exhibit 11-15

Transcribed Image Text:

EXHIBIT 11-15 P/10-Year MA(E) and Predicted Ten-Year Real Price Growth 10-Year Real Price Growth (%) 150 100 50 0 -50 -100 -150 Predicted P/10-Year MA(E) 10-Year Real Price Growth (%) 5 57.4 10 39.1 15 20.8 15.8 17.9 20 2.5 25 -15.8 30 -34.1 35 -52.4 40 -70.7 January 2009 P/10-Year MA(E) = 15.8 Regression Line 10-year real price growth = -0.0366 x P/10-year MA(E) + 0.7569 R = 0.1488 0 5 10 15 20 25 30 35 P/10-Year MA(E) 40 40 45 449