Solution-I we observe a rise in the ratio of pt dt relative

I we observe a rise in the ratio of pt dt relative to its

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Consider the constant-growth dividend discount model, where p_t= D_t 1+g/k-g, where p_t and D_t are prices and dividends in period t, and k is the rate of return on equity, g is the growth rate of dividends, and k > g. Then pt/D_t= 1+g/k-g. Provide an economic explanation for the effect of a fall in k on the price-dividend ratio.

(a) If we observe a rise in the ratio of pt/ dt relative to its historic average, how might this be explained within the context of the model?

(b) How do these explanations relate to the "this time is different" thesis? Explain.

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I we observe a rise in the ratio of pt dt relative to its

Reference no: EM13574167

Reference no: EM13574167

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