Question
18.29. Advanced-level questions At the end of 2020, the value of the S&P 500 Index divided by the estimated 2020 earnings for S&P 500 firms
18.29. Advanced-level questions
At the end of 2020, the value of the S&P 500 Index divided by the estimated 2020 earnings for S&P 500 firms (the S&P 500 P/E multiple) was 36.80. Assume that the long-term Treasury bond yield was 1.88 percent, the market risk premium was 6 percent, and firms in the S&P 500 were expected to pay out an average of 40.2 percent of their earnings as dividends in the future. At what rate were dividends paid by S&P 500 firms expected to grow in the future?
Please provide step-by-step calculation.
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