Price$/$Earnings and Stock Value

You may use Excel or StatCrunch for any data visualizations used in this assignment.

The CAPE$10$ index is based on the Price$/$Earnings $($P$/$E$)$ ratios of stocks. We can examine the P$/$E

ratios of companies without applying the smoothing techniques used to find the CAPE$10.$ The data

file CAPE$10$ holds the data, giving dates, various economic variables, CAPE$10$ values, and P$/$E values for a group of companies.

Examine the price$/$earnings values in the column $"$L$"$ of the data file labeled $"$PE$."$ Split the data into two periods: $1900-1989$ and $1990$ to present. Create one histogram for all the records that have

dates from $1900-1989,$ and another histogram for the dates from $1990$ onward.

$1.$Would you judge that a Normal model would be appropriate for those values from the $1880s$ through the $1980$ s$?$ Create data plots to determine this. Why or why not? Show the visual histogram plots you made with your analysis.

$2.$ Now consider the more recent price$/$earnings values in the PE column from $1990$ onward. Do you think they have been extreme? Are they normally distributed? Are there any years that

appear to be outliers? Explain $($also with data plots$/$visual analysis$).$

Data file posted below this assignment in the Chapter $8-9$ unit.

Tip: Remember that a trend line is $*$not$"$ the same thing as a normal distribution. You should be sorting by values and not by dates on your $x-$axis. Use a histogram or similar, not a trend line or regression.