implied equity risk Premium from 1981-2013 is 4.56%

fair PE today = 17.56

Question 2 (10 Marks) You are trying to assess whether the ASX 200 is correctly priced today and have collected the following information: Current Average: 1981-2013 Forward PE 20 12 Return on equity 15% 12% 4% Expected nominal growth (in perpetuity) 3% T-Bond rate 3% 5% (c) Now assume that you believe that the RBA can keep the T-Bond rate at 3%, even as the economy improves. How high would the nominal growth rate have to be in perpetuity for stocks to be fairly-valued? (2 marks) g = 3.83%