Explain how long-term price-to-earnings ratios in the U.S. stock market of around 15 times are consistent with long-term expected stock returns of around 6 to 7 percent a year in real terms.
Answer to relevant QuestionsAnalysis of stock market eras over the past 50 years shows that inflation was the single most important driver of total returns to shareholders (TRS) for the market as a whole. Discuss why inflation has such a strong impact ...Exhibit 15.1 shows how (cumulative) returns on investments in the equity market index have consistently exceeded returns on investments in government bonds over the past 200 years. This being the case, would you recommend ...Explain how changing from last-in first-out (LIFO) to first-in first-out (FIFO) might lead to a change in a company’s intrinsic value in some countries but not in others. Discuss the key differences between the stock market downturn in 2001 and the one in 2008. Do you think it is possible for a company to shape its shareholder base to maximize its share price? What would a company have to do?
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