liangfeng

Or they might ask you to give the price for the market that the model implies.

liangfeng

yellayella Wrote:
-------------------------------------------------------
> "CFAI IMHO would not ask a basic memorization
> question on this. So to use this bad boy, you
> compare the earnings yield from this model to the
> current market earnings yield. If the current
> market yield is higher, equities are underpriced.
> "
>
> Could you briefly explain why equities would be
> under priced?
> If the model says earnings yield should be 2% and
> in the market it is 4%....then...?
> sorry i have a knot in my head.

Think of bond pricing. Higher yield means lower price. If the yield is higher than what it should be, then its underpriced.

NO EXCUSES