Question 22

1. If the PE of a broad market index is below the historical average PE, an investor might expect:

a. the earnings yield ratio to increase in the future.

b. the value of stocks in the index to decrease in the future.

c. the PE s of the index to fall in the future.

d. the earnings/price ratio to decrease in the future as stock values increase.

Question 23

1. The Greenspan Model attempts to estimate the relative valuation of the stock market by:

a. subtracting the 10-year Treasury bond yield from the S&P 500 earnings yield.

b. comparing the U.S. T-Bill rate with the E/P ratio of the broad market.

c. subtracting the S&P earnings yield from the yield on a long-term U.S. Treasury bond.

d. subtracting the S&P dividend yield from the 10-year Treasury yield.