- CFA Exams
- CFA Exam: Level II 2021
- Study Session 9. Equity Valuation (1)
- Reading 25. Return Concepts
- Subject 2. The equity risk premium
CFA Practice Question
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%.
Correct Answer: A
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) |