Question
1. The current dividend yield on the overall stock market is 2%. You know that overall corporate earnings have grown about 6% per year (nominal
1. The current dividend yield on the overall stock market is 2%. You know that overall corporate earnings have grown about 6% per year (nominal rate) throughout most of American history. Given this information, what do you expect the return to be on your investment in an index fund if you invested today?
a. 2%
b. 6%
c. 8%
d. 10%
2. How would your answer change if you knew that the market multiple (e.g. P/E ratio) was at an all-time high?
a. I would expect returns to be higher than my prior answer.
b. I would expect no change in the returns I expect.
c. I would expect returns to be lower than my prior answer.
d. Not enough information.
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