Question
The S&P Index trades at 17.5 X earnings, with a dividend yield of 2%. Inflation is expected to average 3.5% whilst real earnings are expected
The S&P Index trades at 17.5 X earnings, with a dividend yield of 2%.
Inflation is expected to average 3.5% whilst real earnings are expected to grow 2.25%
What is Ke?
What is the expected nominal growth in earnings?
What is the pay-out ratio?
What is the expected P/E on a constant growth model?
What is the necessary growth rate required to justify the current P/E?
Given the difference between the two growth rates, what general observations can we make about the "model" used to value the market at current levels?
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Basic Finance An Introduction to Financial Institutions Investments and Management
Authors: Herbert B. Mayo
10th edition
1111820635, 978-1111820633
