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Asset Management is an important subject in Economics. In these Lecture Slides, following concepts are discussed : Equity Premium, Variables, Two Alternative Ways, Measure Returns, Growth in Prices, Dividend Growth, Earning Growth, Aggregate Price Index, Earning, Ratios
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t
t
t โ 1
t
)t
/Pt tโ 1
t
)t
/Pt tโ 1
)t where โAโ stands for average GP t^ = growth in prices (=p /pt tโ 1 )*(L tโ 1 /L )t
US Data ( โ
: Div/P and Earning/P ratios 8 6 4 2 0 18 16 14 12 10 1865 1885 1905 1925 1945 1965 1985 2005 percent
FF (2002) : The Equity Premium (Cont.)
F t = risk free rate - R t = return on equity - RXD t = equity premium, calculated using dividend growth - RXY t = equity premium, calculated using earnings growth - RX t = actual equity premium (= R t - F t )
h t+
ln(1+H t+
ln[(P t+
t+
]t
h t+
p t+
p t
)d t+
k
where p t^
ln(P )t
and
Mean(P)
[Mean(P)
Mean(D)]
t^
dt
p t
h t+
t^
t+
dt+
k Dynamic version of the Gordon Growth model
p t
dt
const.
t^
jโ 1
dt+j
h t+j
lim
j^ (p t+j
d t+j
th