Fed model

[June06]

Is Equity current earnings yield/ current 10-year treasury yield
or
Equity forward earnings yield/ current 10-year treasury yield?

 

[pokhim]

2011 exam uses forwards earnings yield. My notes has current earnings yield. But i still got the right answer..

 

[June06]

pokhim wrote:
2011 exam uses forwards earnings yield. My notes has current earnings yield. But i still got the right answer..

amazing…

 

[mattmania]

Staright from CFA R17 pg145:
S&P earnings yield (usually defined as forward operating earnings yield)

 

[June06]

What’s the rationale here? Numerator and denominor should be consistent?

 

[mattmania]

Current earnings yield on equities uses previous year’s earnings and today’s price. FEY = predicted earnings/current price
The cash received for a treasury is fixed (unlike businesses), so next year’s earnings = this year’s earnings. So yield = next year’s earnings/current price

 

[June06]

Thanks. Great explanation!