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10 points Save Anewe On March 11, 1994, the New York Stock Exchange Composite was trading at 16.9 times earnings, and the average dividend yield
10 points Save Anewe On March 11, 1994, the New York Stock Exchange Composite was trading at 16.9 times earnings, and the average dividend yield across stocks on the exchange was 2.5%. The treasury bond rate on March 11, 1994, was 6.95% The economy was expected to grow 2.5% a year, in real terms, in the long term, and the consensus estimate for inflatios, in the long term, was 1.3%. According to Fisher equation Expected Growth Rate (1+Real Growth Rate) (1+ Expected Inflation)-1 A. Based upon these inputs, estimate the appropriate P/E ratio for the exchange. B. What growth rate in dividends/earnings would justify the P/E ratio on March 11, 1994
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