Define the price-to-value ratio

Reference no: EM131486911

Question: Figure plots a price-to-value ratio (PN) for the Dow Jones Industrial Average (DJIA) from 1979 to 1999. A PN ratio is a metric that compares the market price (P) to an estimate of intrinsic value (V). The intrinsic value in the figure is based on techniques that will be discussed in this book, but how it is calculated is not important for the following questions:

a. Up to 1996, the PN ratio fluctuated around 1.0. What do you make of this pattern?

b. If you had purchased the Dow 30 stocks each time the PN ratio fell below 0.8 and had sold them each time the PN ratio rose above 1.2, would your investment strategy have performed well?

c. What interpretation do you put on the continuing upward movement of the PN ratio after 1995?

d. Which direction so you think this graph headed after 1999?

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Reference no: EM131486911

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