CAS Exam 9 Spring 2015, Question 7
Study guide: Exam 9
An investor has held the same portfolio of stocks since 1955.
| Average Risk-Free Rate | Average Portfolio Return | Average Dividend Yield | Average Dividend Growth Rate | |
|---|---|---|---|---|
| 1955-1974 | 4.1% | 9.5% | 6.6% | 3.0% |
| 1975-1994 | 3.8% | 9.1% | 4.9% | 4.0% |
| 1995-2014 | 4.3% | 12.6% | 5.6% | 3.5% |
Using the dividend discount model (DDM), evaluate whether the high returns in the most recent period can be expected to persist into the future.
Part a (1.25 points)
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