S&P 500 Valuation

Apr 15th, 2015
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1. Homework S&P 500 Valuation (CH 12) Download Excel file sp-500-eps-est. P/E Multiple a. Let’s use the analyst’s estimate of 2015 operating earnings of $118.59 in the Estimates&PEs tab. b. On the Quarterly Data tab, forecast the dividend payout ratio for the historical time series. c. On the Quarterly Data tab, forecast the dividend yield for the historical time series. d. With your forecasted dividend payout ratio, and dividend yield use equation 12.6 to compute the forward earnings multiple. e. Estimate the value of the S&P 500 f. Is the market fairly valued, undervalued, or overvalued?

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data:DividendDividend growth for next 2 yearsDividend growth after the 2 yearsBetaRisk-free rateMarket PremiumSolution:rate of returnrs = rRF + (rM - rRF)$3.2521%7% Constant, thereafter14.50%6%10.50%Calculate the expected dividends:D0 =D1 =D2 =D3 =D3 =$3.25$3.93$4.76$5.09$4.91Calculate the PV of the expected dividends:PVDiv =$7.46Calculate P2D3/(rs g) =$140.29Calculate the PV ofPV =$114.89Sum the PVs to obtain the stocks price:$122.35Note: By clicking the excel cell (for examcalculation used in the formula bar. Altecell you can also p

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