Question: If Professor Siegel is correct that stocks are less risky
If Professor Siegel is correct that stocks are less risky than bonds, then the risk premium on stock may be zero. Assuming that the risk-free interest rate is 2½ percent, the growth rate of dividends is 1 percent and the current level of dividends is $35, use the dividend-discount model to compute the level of the S&P 500 that is warranted by the fundamentals. Compare the result to the current S&P 500 level, and comment on it.
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