CFA mock 2013 5C Fed Model

[shrubaks123]

Why using BB rated corporte bond will not bring any effect on fair value estimate of stock market??

 

[da_mad_tiki]

bc the fed model doesn’t use corporate bonds….it uses gov bonds

 

[shrubaks123]

Yes correct but using BB bonds will make denominaor higher then wont this give any effect on the ratio ??

 

[MrSmart]

Stock yields do not use any bond input, if that’s what you mean.
BB bonds are more comparable to earnings yields than government bonds, at least they have a risk premium.

 

[shrubaks123]

I now get it ..Thank you !

 

[da_mad_tiki]

the question was asking if you knew the inputs to the formula. that’s it

 

[cokemicho]

da_mad_tiki wrote:
bc the fed model doesn’t use corporate bonds….it uses gov bonds

+1