CFA Practice Question

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CFA Practice Question

The equity market appreciation rate can be decomposed into three components: nominal GDP growth, expansion/contraction of the share of profits in GDP, and expansion/contraction of the P/E. One study found the over long horizons of 40 years the stock market price appreciation was 7.15% per year. During the same period one factor of the three actually grew 6.95% per year. This factor is most likely to be:
A. Real GDP growth.
B. EPS/GDP.
C. P/E
Explanation: The growth rate of GDP must dominate in the long run.

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