Assume That the S&P 500 Currently Has a Dividend Yield

question 37

Multiple Choice

Assume that the S&P 500 currently has a dividend yield of 3% and that on average,the dividends of S&P 500 firms have increased by about 5% per year.If the risk-free interest rate is 4%,then your estimate for the future market risk premium is:

• A)7%.
• B)8%.
• C)6%.
• D)4%.

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Definitions:

Advertisement

A message aimed at persuading or informing an audience about a product, service, or idea, often designed to stimulate purchasing behavior.

Neoliberal

A political and economic philosophy that emphasizes free-market capitalism, deregulation, and a reduction in government spending.

19th Century

A period from 1801 to 1900 characterized by significant social, economic, and technological changes, including the Industrial Revolution.

Capitalism

A mode of production in which owners of capital (capitalists) purchase labor power from workers at the market rate in order to produce surplus value and hence make profit. In this system, workers are expropriated; that is, because they do not own the means of production, they must sell their labor power in order to survive.