My Yardeni Model question, single, equity, current, compare

willsucceed

The Yardeni Model estimates equilibrium earnings yield.

E1/P0= Yb-d(LTEG)

Where:

Yb typically is single A rated bonds (to approximate equity risk premium)

Yb-d(LTEG)= "Yardeni Earnings Yield"

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.

Where they can get you is when they give you the P/E multiple and expect you to remember that the inverse of the P/E multiple is the earnings yield E/P.