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Stock market index level

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Assume that the stock market index is trading at a level of 3,350.

You can interpret this index level as a scaled price that was set at some point to 100 and appreciates as the stocks included in the index appreciate. The long-term risk-free rate is 1%. The aggregate earnings (scaled in the same way as the index level) of the firms in the stock market index are expected to be 140 next year and the payout ratio (dividends as a percentage of earnings) has been 45% and is expected to remain 45%.

What additional assumptions can justify the stock market index level of 3,350?

Reference no: EM132614225

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