Topic Test Economics (Ronan) #5: Fed Model

CFA Level III Economics
#1

Hi.

In Topics Test - Ronan question #5, you will use the Fed model to determine if the equity is overvalued or not. The table gives you “forward earnings yield” and “justified forward earnings yield”. Which one would you use?

Thanks in advance.

#2

Forward earnings yield.

Justified forward earnings yield encompasses growth rates. The Yardeni model captures growth, unlike the Fed model.

#3

Hi kevinsfl. Thanks for the clarification. I appreciate it.