Assume That the S&P/TSX Composite Index Currently Has a Dividend

question 31

Multiple Choice

Assume that the S&P/TSX Composite Index currently has a dividend yield of 2% and that on average,the dividends of S&P/TSX Composite Index firms have increased by about 7% per year.If the risk-free interest rate is 4%,then your estimate for the future market risk premium is:

• A) 4%
• B) 7%
• C) 8%
• D) 5%

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Definitions:

Recent Experience

Refers to the latest or most current events or developments, often used in the context of assessing performance or trends.

Anomalies Literature

Studies and publications that investigate inconsistencies or deviations from common financial theories or market efficiency, often identifying patterns or behaviors that cannot be explained by traditional models.

Market Efficiency

The degree to which stock prices reflect all available, relevant information, making it impossible to consistently achieve higher returns.

Superior Returns

Financial returns that exceed those of a benchmark or average over the same period.