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Basic Question 7 of 8
In the supply side analysis, the expected growth rate in the P/E ratio should be ______ if the market is efficient.
B. 2%.
C. 5%.
A. 0.
B. 2%.
C. 5%.
User Contributed Comments 5
| User | Comment |
|---|---|
| kasthala | why? |
| kodali | If the market is efficient and discounts all the risk the risk premium should be constant and the growth rate of p/e should be zero |
| charomano | P/E = D / (k-g)
g=0 => you discount cash flows at the required rate of return |
| birdperson | good question |
| JZERMENO | Because zero is the rate that leads to equilibrium (from a macro point of view) |
I am using your study notes and I know of at least 5 other friends of mine who used it and passed the exam last Dec. Keep up your great work!
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Learning Outcome Statements
explain historical and forward-looking approaches to estimating an equity risk premium;
CFA® 2025 Level II Curriculum, Volume 3, Module 18.